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Economic Analysis of Key instruments (Auctioned pollution Permits (Kyoto…
Economic Analysis of Key instruments
Command and control
Issuers are required to carry out a prescribed pollution reduction control
Regulator sets emission standart level
Most common policy are emission limits
Emission Taxes
Tax of a size ç per unit of poluttion
Optimal respose is Marginal abatement rate = tax rate
higher taxes lead to lower emission
Auctioned pollution Permits
Kyoto Protocol
Emission trade in the OECD
Clean Devepment Mechanism (project based) between OECD and less developed contries
Join implementation
2 permit system in Usa
EU emmission trading system
Others follow (Australia)
9 markets 9 prices
Coaseian approach (govr as owner of property) does not sell right to pollute to highes bidder
Allowance for emitting fixed amont of pollutant over a given period of time
Total cost formula=cost of e + aution price for an emission right
Cost minimization is FOC
L= sum of e j in number j
If regulator knows aggereate demand curve and the fims behave as price takers, the regulator can achive an aggregate target E. L- issuing a total amont of permits
or configurate the tax
Freely Distributed Trasferable Permits
Very different approach, no auction
a fixed amouth of permits
Ex: EU Emission Trading System
Raises problem of market initiation
Grandgathering
Give permits to current polluteres
Auctioning
Per capita
To victim
Subsidies
firms recieves a paymet è for each unit of pollution abated below some reference level
Per-unit subsidy has the same effect as an emission tax
Firms chose the emissin level that equates marginal abteent cost to the per unit subsidy
2 impacts
Fiscal (Reduce transfers to the industry)
Structural (impacts of subsidies on average cost)
Mix tax/subsidy
Higher certain level u pay, lower govr pays
