EC238 Chapter Notes - Chapter 13: Emissions Trading, Marginal Cost, Demand Curve
Document Summary
Introduction: tax = interaction between polluters and public authorities in which we might expect the same type of adversarial relationship we get in any tax system, tep = decentralized market interactions of polluters themselves. The market does this automatically because polluters set the permit price equal to their mac. If polluters believe that permits will soon be allocated on the basis of current emissions, they may have the i(cid:374)(cid:272)e(cid:374)ti(cid:448)e to i(cid:374)(cid:272)(cid:396)ease toda(cid:455)"s e(cid:373)issio(cid:374) (cid:396)ate, because this would give them a larger base for the initial allocation of permits. Intervention in the permits market likely to be counterproductive. Identical to emissions tax in theory in generating incentives to innovate. Incentive to do r&d is to find a less costly way of controlling emissions, so the firm can cut emissions and sell the surplus permits. Online lecture notes: chapter 13, firms and regulators can experience an adversarial relationship in their interactions, transferrable emission permits/tradeable emission allowances.
