Pollution Reduction Obligations

Support all your answers by graphs! Assume that to meet pollution reduction obligations Canada places a cap on domestic carbon dioxide (CO2) emissions. Compare (i) a command-and-control approach, (ii) a tradable emission permits (TEP’s) system and (iii) an emission tax as ways to achieve the cap. Assume that government implements the tool uniformly: either x-units standard for each polluter, or the same emission charge $y for each polluter, or z-permits to each polluter. Compare these three tools with respect to:

1. Achieving efficient allocation of emissions.

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2. Achieving cost-effective allocation of emissions.

3. Compliance (private) cost for polluter.

4. Incentives provided for companies to invest in new technology to reduce marginal abatement costs.

5.Whether revenue will be generated for the regulator.

6.Uncertainty about marginal abatement cost, while marginal damages are known with certainty.

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