EC238 Chapter Notes - Chapter 12: Opportunity Cost, Social Cost
Chapter 12 – Emission Taxes and Subsidies
Market-Based Incentive Policies
1.) Taxes and subsidies
2.) transferable emission permits
Emission Taxes or Emission Charges
Incentive based approach to controlling emissions
o1.) taxing each unit of emissions or
o2.) giving a subsidy for each unit of emissions that the source cuts back
As you pollute more, the less subsidy you will get, therefore you need to find a maximum of subsidy you
get minus abatement cost, so reducing emissions until the tax rate equals their marginal abatement cost
Total damages forgone = area (e + f)
Net social benefit = area (e + f) minus e
Emission Taxes vs. Standards
When MACs differ among polluters, social compliance costs are lower under a tax than a
uniform standard meeting the same target level of emissions because the tax is cost effective
and the uniform standard is not
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Document Summary
Incentive based approach to controlling emissions: 1. ) taxing each unit of emissions or, 2. ) giving a subsidy for each unit of emissions that the source cuts back. As you pollute more, the less subsidy you will get, therefore you need to find a maximum of subsidy you get minus abatement cost, so reducing emissions until the tax rate equals their marginal abatement cost. Total damages forgone = area (e + f) Net social benefit = area (e + f) minus e. When macs differ among polluters, social compliance costs are lower under a tax than a uniform standard meeting the same target level of emissions because the tax is cost effective and the uniform standard is not. Emission taxes, the double dividend, and the bc carbon tax. The taxes that government collect from emissions, it is used to reduce other taxes that provide disincentives to work, such as taxes on payroll, income, and investments.
