,ECS2606 Assignment 2 (COMPLETE ANSWERS) Semester 2
2024 (583488) - DUE 20 September 2024 ; 100% TRUSTED
Complete, trusted solutions and explanations.
1. Discuss the different incentive-based policies which are
available in environmental economics. [10]
In environmental economics, incentive-based policies aim to
encourage individuals and businesses to adopt environmentally
friendly practices and reduce negative environmental impacts.
These policies use financial incentives to align private behavior
with social and environmental goals. Here are the main types of
incentive-based policies:
1. Pollution Taxes (Pigovian Taxes)
Concept:
• Pollution taxes are levies imposed on the emission of
pollutants. The tax rate is typically set based on the
estimated cost of the environmental damage caused by the
pollution.
Mechanism:
• By increasing the cost of polluting activities, pollution
taxes provide a financial incentive for firms and individuals
to reduce their emissions or switch to cleaner technologies.
Example:
• A carbon tax on greenhouse gas emissions, where
companies pay a tax for each ton of CO2 they emit.
, Advantages:
• Creates a direct financial incentive to reduce pollution.
• Generates government revenue that can be used for
environmental programs or subsidies for clean
technologies.
Disadvantages:
• Setting the optimal tax rate can be challenging.
• May be politically difficult to implement.
2. Cap-and-Trade Systems (Emissions Trading Schemes)
Concept:
• Cap-and-trade systems set a limit (cap) on the total level of
emissions allowed and allocate emission permits or
allowances to firms. Firms can trade these permits in a
market, providing flexibility in how they meet their
emissions reduction targets.
Mechanism:
• Firms that reduce their emissions below their allowance can
sell excess permits to other firms, creating a financial
incentive for emission reductions.
Example:
• The European Union Emissions Trading Scheme (EU
ETS), which caps the total emissions of covered sectors and
allows trading of emission allowances.
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