,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 are
designed to encourage individuals and firms to adopt
environmentally friendly practices through financial or
economic incentives. These policies leverage market
mechanisms to achieve environmental goals more efficiently
than traditional regulatory approaches. Here are some key
incentive-based policies:
1. Pollution Taxes (Pigovian Taxes)
Description: A pollution tax imposes a fee on the amount of
pollution a firm or individual emits. The tax rate is usually set
equal to the estimated social cost of the pollution.
Example: Carbon taxes, which charge a fee per ton of carbon
dioxide emitted, aim to reduce greenhouse gas emissions by
making it more costly to emit carbon.
Effectiveness: Pollution taxes provide a financial incentive to
reduce emissions and can generate revenue that can be used to
fund other environmental initiatives.
2. Cap-and-Trade Systems (Emissions Trading)
Description: Under a cap-and-trade system, a total limit (cap) is
set on the amount of pollution that can be emitted. Firms are
, allocated or auctioned emission permits, which they can trade
with each other.
Example: The European Union Emission Trading System (EU
ETS) is a well-known example where companies can buy and
sell emission allowances.
Effectiveness: Cap-and-trade systems create a market for
pollution permits, encouraging firms to reduce emissions in the
most cost-effective way. They also provide flexibility in how
reductions are achieved.
3. Subsidies for Pollution Control
Description: Subsidies are financial incentives provided to
firms or individuals to encourage investment in pollution control
technologies or practices.
Example: Governments might offer tax credits or direct
subsidies for installing renewable energy systems, such as solar
panels or wind turbines.
Effectiveness: Subsidies can lower the cost of adopting
environmentally friendly technologies and can accelerate the
transition to cleaner alternatives.
4. Tradable Permit Systems for Resource Use
Description: Similar to emissions trading, tradable permit
systems for resource use allocate rights to use natural resources,
such as water or fisheries, which can be traded among users.
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