Question

Climate change and the associated greenhouse gas pollutants have many of the characteristics of public goods.  

a) Discuss the above statement. In what way can these be considered an issue of a public good?

b) If the government uses command and control (e.g. legislative or technology restrictions) would the outcomes of the policy necessarily be efficient? (You should discuss your answer and may wish to use a diagram to support your argument and consider how efficiency may differ in terms of different sources of pollutants)

c) For what reasons might a Pigouvian tax be preferred to command and control alternatives.

d) How would the impacts of a tradeable permit scheme differ from those of a Pigouvian Tax (both in theory and in the real world)?

For questions 5c and 5d you should consider the incentives, efficiency and costs of the alternatives and marginal abatement costs

Answer 1

Answer (a): Climate change and its ill effects have been a major contention for the nature’s existence and the associated existence of the mankind. Among the various adverse effects of natures rapid change, the effect on the greenhouse gas pollution has been extreme and even more devastating some parts of the world. Many economists have associated the climate change and its associated greenhouse gas pollution with that of the characteristics of public goods. If we briefly discuss the characteristics of public goods, we find that Public goods are universal and for everybody, similarly, the greenhouse gas emission may be done from a particular area of the world, however, its impact and ill effect is for everybody to bear. Similarly, public goods are never scarce in nature and consumption by some do not reduce the available amount of the public goods for the others, so is the greenhouse gas emission effect is not going lesser in the next few years and there does not seem to any reduction in the extent of the polluted emission even when some of the countries are trying their best to control it.

                                   Answer (b): Command and control is not always an effective means of bringing about a change in the society. Moreover, we are dealing with nature and its effects here, which makes it even more difficult to practically implement and succeed by the command and control method. Simply bringing about legislative or technological changes or restrictions upon the emission boards or firms or agencies will only forcibly hold the emission for a while, but it cannot bring about a larger change or difference with regards to the environmental scenario in the longer run. Along with some amount of command and control , a Government also needs to bring about other effective measures such as advocating the general masses about the ill effects of pollution, bringing about a change in the small habits of the people, initiating proper dialogue with the firm boards to bring about a change in the technological production process so as to curb the menace forever.

                                  Answer (c): Pigouvian tax means implementing tax on those acts or measures that in the longer run leads to negative impact on an individual or society, i.e. here, all those sources of pollution emission are taxed at the grass root level so that the issue never arises, or arises in lesser number or quantity or amount. A Pigouvian tax system would be preferred in the case of greenhouse gas emission control as if the sources or the starting points of those activities are charged which later on leads to pollution emission, then lesser use of those sources would be done, thereby eradicating their future effects. Hence, in this instance a Pigouvian tax system will be of better use and more effective.

                                Answer (d): A tradable permit scheme would naturally be a different with highly conspicuous results in relation to the Pigouvian taxation system. This is because, in a tradable permit scheme, the firm emitting the pollution is advised to limit the pollution internally and various incentives are allocated to the firms in exchange for their efforts to limit pollution and emission standards. Empirically, such beneficial schemes and programs for the firms and other emission institutions have been seen to be more effective that any other measure, as in this case the firms or institutions get small benefits and are more tempted to fall in line with the directives.