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Unformatted text preview: Section Notes Week 12 Outline PES Markets Practice Essay Question Climage Change Practice Essay Question You just read the article interviewing James Lovelock on climate change policy. He proposes the idea of carbon xing: using agricultural biomass by-product, plant material that has sequestered carbon, and turning it into charcoal (carbon in solid form) and then storing it in the ground. Part of the process will generate some energy in the production of biofuel that can then be sold. 1. Using what we have learned from class, analyze this idea in an economic framework. Assess the merits of his proposal, being sure to address the following: (a) He says, This scheme would need no subsidy: the farmer would make a pro t because they could sell the biofuel. Give two reasons why this statement may not be true. (b) What role then is there for government? Note and discuss two actions/policies, and where the nances for government expenditure would come from. Rent Functions Rents, or pro ts, from agricultural production activities can be modeled as a function of temperature. As climate change occurs over regions, temperature and hence rents from agricultural production will change. Rent is often modeled as a quadratic function, which re ects the reality that yields will increase in temper- ature up to a certain point, and then they will begin to decrease. The model belows uses t to represent temperature: Rent = 10 + 200 t- 4 t 2 What temperature will maximize rent? We solve by setting Rent t = 0 200- 8 t = 0 t = 25 . Rent is maximized at a temperature of 25 degrees (Celsius). You can use the following table to project the impact of climate change on various regions: Initial Temperature Initial Rent CC Temp. CC. RentCC....
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- Spring '09