Question

For each of the above three policies, answer the following questions and support your answer. i) does the equimarginal condition hold? ii) Is aggregate abatement to the aggregate target met in a cost effective manner?

Three policies: cap and trade, emissions standards, and carbon taxes.

Answer 1

•Cap & trade- a system for controlling carbon emissions and other forms of atmospheric pollution by which an upper limit is set on the amount a given business or other organization may produce but which allows further capacity to be bought from other organizations that have not used their full allowance.
•Emission standards- are the legal requirements governing air pollutants released into the atmosphere. Emission standards set quantitative limits on the permissible amount of specific air pollutants that may be released from specific sources over specific timeframes.
•Carbon Tax- a tax on fossil fuels, especially those used by motor vehicles, intended to reduce the emission of carbon dioxide.
In order to maximise satisfaction with a limited amount of money a consumer has to compare the satisfaction obtained from each rupee that he spends on different commo­dities.If he finds that a rupee spent on one commodity gives him more utility than the same rupee spent on another commodity, he shall continue to spend money on the former till the utilities derived from the last rupee spent on the two commodities are equal.It will create impact on both condition according to the situation that prevailed.