Assume there is a cap on aggregate emissions that has been decided upon by regul

Question

Assume there is a cap on aggregate emissions that has been decided upon by regulators after considering the aggregate marginal abatement cost curve and the marginal damage cost. Three alternative ways of reducing emissions to the level of the cap are being considered: individual emissions standards, an emissions tax, and a tradable emission permit system (TEPS). Compare individual emission standards, an emissions tax and TEPS using the following considerations:

i) Information required by the regulator. In addition to the aggregate emissions cap,

what other information does the regulator need to set individual standards on

emitters versus an emissions tax versus a tradable emission permits system

(TEPS)?

ii) What incentives does each alternative provide for the development of new

technology?

Explanation / Answer

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