Transcript US toilet legislation - australianmacroeconomics

Emissions trading
Greg Barrett
Economics Lecturer
University of Canberra
Carbon cycle ecology
Objectives
Theory
Practice
end of the world
Carbon Cycle
Asset
Atmosphere
750 Gt carbon (stock)
+3 Gt pa (flow)
Flow
4 Gt pa
Asset
Plants
600Gt
Soil
1600Gt
Oceans
40,000Gt
Flow
burning
5 Gt pa
Asset
Fossil
fuel
3300 Gt
Flow
Deforestation
2 Gt pa
Greenhouse
Response
(damage
function)
Ambient
level
W>A
emission
(dose)
CO2 concentrations
1800s
1960
1988
2005
parts per million
290
315
350
379
Allen Kneese
Opposed
•Direct
regulation
•Subsidies
Supported
•recycling
•green
taxes
•tradable permits
•ethics
Ethics
Who polluted most?
Who is responsible?
Who should pay?
Objectives
Effectiveness: reduce pollution
•regulate
quantities
ogovernment
Efficiency: minimise pollution
cost
•price
externality
ogreen
taxes
Efficiency & Effectiveness
•emissions
omarket
trading
Production & consumption
externalities
$
SS
SP
production
PS
PP
DS
XS
$
PP
PS
$
XP
output & W
SS
consumption
DP
DS
output & W
XS
MNPB
XP
XA
XP
MEC
PS
XS
output & W
EU air pollution
Shorter life span
•
8.6 months
o
cardiovascular & respiratory diseases
Policy (Clean Air for Europe )
•
save 2.3 months
•
worth 161 billion euros a year
Productive efficiency
$/t
MAC 1
MAC 2
t1
MAC 3
t2
t3
S2
tons of
abatement
Regulating quantity by licensing
Marketable permits
Definition
•Property
rights
•Tradeable license
o
to pollute or extract resource
Allocation
•ownership
•initial allocation
o
grandfathering vs auctions
•reallocation
over time
Productive efficiency
$/t
MAC 1
MAC 2
t1
MAC 3
t2
t3
S 1 S2 S 3
tons of
abatement
Green emissions tax
Allowing trading of licenses
Fox River
Discharger Impact MAC MC/DO
coeff
$US/lb $US/µg/l
1
2
3
4
5
6
7
107
189
373
231
184
214
101
7.20
2.10
1.90
3.10
1.80
7.90
2.60
72
11
5
14
11
37
27
Examples
Resource license trading
fishing quotas
• irrigation licenses
•
Pollution emissions trading
SO2 1970 USA
• lead 1985 USA
• SO2 1990 USA
• CFCs Australia
• Salt 2004 NSW
• CO2 2003 NSW
• CO2 2005 EU
• CO2 2008 NZ
•
Advantages
Tradeable permits
Savings in compliance costs.
• Allows new polluters to buy quota from old (economic growth).
• Flexible
•limits total emissions
•
target can be adjusted
o pollution outcome certain
o target area -bubbles
o
•lower abatement cost
•adjusts to economy
Appropriateness
Compliance costs vary
Sufficient trades & traders
• Fixed polluters.
• Encourages technological change
• Needs market intermediation
• Environmental impact same
•
•
Problems
multiple pollutants
• Concentrating polluters
• Economic rents accrue to polluters
• High transactions costs
• Needs a sophisticated market
• set up & administration costs
• low usage
•
Relevance to environmental media
Acid Rain Program SO2 Allowances Transferred
Price of Sulfur Dioxide Allowances
reduction in allowances
•
initially
oprice
not increasing
– Technological change?
•
long-run
o
price rise
Outcomes
percentage change
“heat input,” = combustion of fossil fuels
* Generation from fossil fuel-fired plants.
** Constant year 2000 dollars adjusted for inflation.
Source: Energy Information Administration (electricity generation, retail price); EPA (heat input and
emissions, representing all affected ARP units), 2007
NSW Benchmark Scheme
Fine of $10.50/t CO2
•
NSW electricity retailers
Pollution permits (NGSC)
•
renewable energy, forests
EU ETS trading problems
Permits not traded
•
grandfathering
Market segmented
•
Clean Development Mechanism
Over allocated
•
imperfect information
Time frame too short
•
long-term investments
Outcome: price $US/t CO2e
2005
2006
2007
• 2008
• target
•
•
•
23
22
0
27
20-50
Cost
•
0.1% of GDP per year
Conclusion
Political decision
regulate price or quantity
• create property rights
•
Practical solution
costs are modest
• learn from experience
•
Institutions important
•
market institutions
brokers
o auctions
o fines
o information
o