Other methods of government intervention

Tradable pollution permits  Tradable pollution permits are rights to sell and buy actual or potential pollution in artificially created markets.

How it works  The government gives companies a limit (measured in carbon emissions) to which they can pollute.  Companies that pollute less than their limit can sell their pollutions permits to companies that pollute above their limit.

Tradable pollution permits  Tradable pollution permits apply usually in Europe’s most heavily pollution industries – steel, coal, paper and oil.

In The EU  Under the 'cap and trade' principle, a cap is set on the total amount of greenhouse gases that can be emitted by all participating installations. 'Allowances' for emissions are then auctioned off or allocated for free, and can subsequently be traded.

In the EU  Installations must monitor and report their CO2 emissions, ensuring they hand in enough allowances to the authorities to cover their emissions. If emission exceeds what is permitted by its allowances, an installation must purchase allowances from others.

In the EU  Conversely, if an installation has performed well at reducing its emissions, it can sell its leftover credits. This allows the system to find the most cost-effective ways of reducing emissions without significant government intervention.

Pollution Permits  An effective permitting scheme would reduce the number of permits available over time. This would reduce the amount of pollution allowed and increase the cost of polluting.  Demonstrate using a supply and demand diagram.

Coal power plant in Germany

Tradable pollution permits  Advantages include: it internalises the externality. This means the polluter pays.

Advantages  It allows market forces to determine the price of the pollution permits. This cuts down on the need of government officials to examine each and every case and come up with a fine which will probably be appealed in court.

Criticisms  Sometimes the permits are granted based on the firms pollution history. They were given enough permits to cover what the firm had polluted in the past. Firms could simply pollute as much as they could right before the permits are issued. This would give them more permits than they really need or should have.

Criticisms  Tradable pollution permits may become too small a portion of a large firm’s costs, thus reducing the incentive of firms to pollute less.

Criticisms  Too many pollution permits being issued may result in the price of pollution permits not preventing the behaviour.

Questions  The EU Carbon Emissions Trading Scheme permitted the power, cement, steel, oil and paper industries to emit up to 1.9 billion tonnes of carbon dioxide in The purpose of the scheme is to:  A) fine companies which pollute up to their allowances  B) reduce market failure from the major polluting companies  C) Tax companies which pollute up to their allowance  D) raise awareness among the public about carbon emissions

Questions  Tradable pollution permits would be more effective in reducing carbon dioxide within in the EU if  A) there is an excess supply of pollution permits  B) major polluting industries such as air travel are excluded from the carbon trading scheme  C) it is difficult to monitor and prosecute firms for exceeding their pollution permits  D) the EU is prepared to increase the price of pollution permits if the price falls too low

Road Pricing  Road Pricing includes fuel taxes, congestion charges, tolls and parking charges.

 mWdMK4 mWdMK4

 What’s the difference between a toll and a congestion charge?

London Congestion Charge

Tolls and congestion charges  To what extent will the increase of the London Congestion Charge from £8 to £10 result in a fall in London’s congestion. (12)

Tolls and congestion charges  The polluter pays  Carbon emissions decrease.  Opportunity for tourism in the congested area increases.  Incentive to go by public transport or cycle increases (but this presupposes that there is an extensive public transport network available).  The government revenue increases.  Government revenue may not be used to develop clean alternatives.  It forms a larger proportion of poorer motorists’ income – so it becomes regressive.  It forms a small proportion of rich motorists’ income and therefore is not enough to change their behaviour. Small % of Y, so inelastic PED.

Landfill tax  First of all – what is a landfill?

Landfill  A landfill is a dump.

Carbon offsetting  Carbon offsetting: customers purchase carbon offsets to compensate for their carbon emissions.  Myclimate.org is a Swiss initiative in offsetting carbon emissions. The money raised goes to environmentally friendly initiatives in the developing world, such as…

Cook stoves and solar panels

Carbon offsetting 

Main feature of carbon offsetting  Entirely voluntary.

Renewable energy certificates  A certificate that proves that electricity was generated from a renewable energy resource. The Renewable Energy Certificate (REC) can then be sold on the open market. Because of the additional cost for producing "green" energy, the RECs provide an additional income stream to the energy provider, thus making it a bit more attractive to produce.

Renewable energy certificates  These apply mostly in the USA.  Electricity suppliers must provide a certain % of their electricity from renewable sources. (33% in California, 24% in New York for example).

Renewable energy certificates  So, if an energy supplier in California produces 43% of their energy from renewable sources, they can sell their excess 10% of electricity suppliers who fail to reach the 33% requirement.

Short question  Which of the following would best reduce the negative externality of pollution.  A) a decrease in the price of tradable pollution permits  B) a change in the income elasticity of demand for clean alternatives  C) a reduction in supply of tradable pollution permits  D) government discontinuing renewable energy certificates

Which of the following is true if the London congestion charge rose from £8 to £10 will  A)the burden will fall mainly on poorer people if motoring has a positive IED.  B) the burden will fall on the motoring industry if motoring is price inelastic.  C) The government will generate less revenue if motoring is price inelastic  D) The government will generate more revenue if motoring is price inelastic

Renewable energy certificates