Releasing CO2 to the air now causes damages far into the future. Economic techni
ID: 2429050 • Letter: R
Question
Releasing CO2 to the air now causes damages far into the future. Economic techniques can be used to estimate the present value of those future damages. This present value is:
The social cost of carbon, and it is essentially a subsidy that encourages burning more fossil fuels because the cost of the damages is not included in the cost of the fossil fuels
The social cost of carbon, and it is essentially a tax that makes fossil fuels expensive to consumers so they don’t burn a lot of fossil fuels
The discount rate, and it is essentially a tax that makes fossil fuels expensive to consumers so they don’t burn a lot of fossil fuels
The pure rate of time preference, and it is essentially a subsidy that encourages burning more fossil fuels because the cost of the damages is not included in the cost of the fossil fuels
The social cost of carbon, which describes the bad looks you get from your friends if you come to a party with oil stains on your clothes.
Explanation / Answer
The discount rate, and it is essentially a tax that makes fossil fuels expensive to consumers so they don’t burn a lot of fossil fuels.
Carbon dioxide is a greenhouse gas responsible for ozone layer depletion and air pollution. It's future consequences are disastrous and therefore there is a need to check its flow into the environment. For this, tax is levied on CO2 emission. This tax is based on future consequences and hence, it has to be first converted into present value using discount rate.