View the step-by-step solution to:

To Slow Warming, Tax Carbon [The New York Times, Published: November 11, 2012]. The main reason emissions have been going up is the rise of coal in...

This question was answered on Dec 08, 2012. View the Answer
To Slow Warming, Tax Carbon [The New York Times, Published: November 11, 2012]. “.. The main reason emissions have been going up is the rise of coal — in China, in particular. Coal is now the source of 30 percent of the world’s energy, up from about 25 percent in the mid-1990s. Europe’s initiatives have had no effect on China’s policies or the global coal burn. Indeed, the initiatives have probably made the situation worse. As the price of energy has increased using current renewables, energy-intensive industries are being driven o¤shore, only for their products to be imported back into the European Union. By the standards of the Kyoto accord, Europe looks good. But those standards measure each country’s production not consumption — of carbon. This has created counterproductive incentives. If steel plants are closed
in Britain and replaced by steel imports from China, Britain counts that as a success. Between 1990 and 2005, Britain’s carbon production fell by about 15 percent — but its carbon consumption rose by 19 percent, when imports were counted. The rest of Europe has been deindustrializing too, and this has also encouraged energy-intensive production to move overseas.” Let us analyze the carbon’s consumption in Britain using game theory, assuming that the Kyoto Protocol not only penalizes coal production but also coal consumption. Britain and China have to decide whether to consume renewable (clean) or coal (dirty) energy. However, Britain signed the Kyoto protocol in 1997 and,
hence, its coal consumption makes more di¢ cult to achieve the reduction in CO2 emissions. Assume that Coal’s consumption generates a negative cost to Britain equal to -15 million when it is the only country consuming it, however, if China also consumes coal this negative cost triples. The cost of consuming coal in China is zero when it is the only country using coal, since China did not signed the Kyoto protocol; however, this cost becomes a bene…t equal to 5 million when both countries consume coal given that Britain imports coal from China. If both countries move away from dirty energy, Britain enjoys an environmental bene…t equal to 28 million and China’s environmental bene…t is half Britain’s bene…t. However, if only one country consumes renewable energy Britain’s bene…ts decrease to 10 million and China’s bene…ts are 14.
1. Draw the normal form game and identify the countries’payoffs. (3 Points)
2. What is the Nash equilibrium of the normal form game? (3 Points)
3. Draw the extensive form of the game and identify the countries’payoffs. Assume that Britain is the …first mover of this game. (4 Points)
4. What is the Nash equilibrium of the extensive form game? (3 Points)
Sign up to view the entire interaction

Top Answer

Please find... View the full answer

8410518.doc

To Slow Warming, Tax Carbon [The New York Times, Published: November 11, 2012]. “.. The
main reason emissions have been going up is the rise of coal — in China, in particular. Coal is
now the...

This question was asked on Dec 07, 2012 and answered on Dec 08, 2012.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors and customizable flashcards—available anywhere, anytime.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access or to earn money with our Marketplace.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
  • -

    Flashcards

    Browse existing sets or create your own using our digital flashcard system. A simple yet effective studying tool to help you earn the grade that you want!

    Browse Flashcards