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xid-10525516_2 - Thursday Dec 1 1 How to reduce external...

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Thursday, Dec 1 1. How to reduce external costs? By making them 'internal' to the market transaction that produces the cost: - Regulatory emission standard: Governing authority sets a numerical standard or limit on concentration or total amount of a pollutant; May require specific type of production operation or process; use of different type of fuel; or installation of equipment or control devices; Often applied to broad class of sources, rather than specifically applied to particular types of sources; Tends to be effective in achieving given reduction level, but tends not be very efficient. - Emission fees or taxes: Governing authority places a per-unit tax or fee on emissions; Efficiency requires some knowledge of firms' costs of emission control... ... and that firms' control technologies and costs are similar - Tradable emission permits: Firms can trade permits to emit, and price of emissions is determined by market transactions What is more efficient - a cap or a fee (tax)?
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