ECS2606 Assignment 2 (COMPLETE ANSWERS) Semester 2 2024) - 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]
Incentive-Based Policies in Environmental Economics
Incentive-based policies create financial incentives or disincentives to encourage
environmentally friendly behavior, offering flexibility to firms in choosing the most cost-
effective methods for pollution reduction. Unlike command-and-control regulations that mandate
specific actions, these policies utilize economic tools to guide behavior.
Common Incentive-Based Policies:
1. Pollution Charges (Taxes):
o Mechanism: Imposing a fee on each unit of pollution emitted.
o Impact: Encourages firms to reduce emissions to lower costs.
o Example: Carbon tax on fossil fuel consumption.
2. Tradable Permits:
o Mechanism: Issuing a limited number of pollution permits that can be bought and
sold.
o Impact: Firms with lower abatement costs sell permits to those with higher costs,
optimizing overall cost efficiency.
o Example: EU Emissions Trading System (ETS) for greenhouse gases.
3. Subsidies:
o Mechanism: Providing financial support for environmentally friendly activities.
o Impact: Promotes investment in clean technologies.
o Example: Subsidies for renewable energy projects.
4. Deposit-Refund Systems:
o Mechanism: Consumers pay a deposit on products, refunded upon proper
recycling or disposal.
o Impact: Incentivizes recycling and reduces waste.
o Example: Deposit on beverage containers.
5. Market-Based Instruments:
o Mechanism: Utilizing market forces to achieve environmental objectives.
o Impact: Often more efficient and flexible compared to direct regulation.
o Examples: Green procurement, environmental labeling, eco-certification.
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