Product
Markets
Factor
Markets
Firms
Households
MicroEconomics
MacroEconomics
• Efficiency
• Equity
• Stability
• Growth
MPC(Typical)
MSC(Green)
Price Per Unit
Short Run Marginal Cost (SRMC)
Qs
Qp
PSR =
SRMPC
Quantity of Output
PLR = LRASC
ASC ( Green)
APC(Typical)
PLR = LRAPC
QLR
PS
SS = ∑MSC
(Green)
SP= ∑MPC
(Typical)
PC
QS QC
Tax on the carbon content of the fuel.
Effect of carbon tax on competitiveness.
Low profit.
Sharing of tax borne by the company.
Environment policy instruments to reduce
Greenhouse gases(GHG)
Carbon Taxes- Price Based
Emission Trading- Quantity Based
Environmental outcome is fixed
- the aggregate emissions levels are fixed
- companies pay to pollute
-also conducive to international agreements
such as Kyoto protocol
Appeals more to private industry
-by decreasing emissions, company profit
Adjusts automatically for inflation & external price shocks
Broader scope for emissions reductions
Involve less transaction cost as compared to Emissions
Trading
Proposals are fairly simpler & familiar to policymakers
Revenue Neutral Tax
Carbon Tax
Emissions Trading
Supply Of Pollution
Permits
Price of pollution
Price Of Pollution
Quantity of pollution
Corrective
tax
Demand
for
pollution
rights
Demand
for
pollution
rights
Quantity of pollution
0
Q
Q
0
P
P
United States – Emissions Trading
European Union – Carbon Taxes
Russian Federation & Ukraine – Emissions
Trading
Developing Countries – Carbon Taxes
*THE TECHNIQUE OF DECOMPOSITIONAL ANALYSIS
CO2 emissions ≡ CO2 emissions per unit of fossil fuel consumed
× fossil fuel consumed per unit of energy consumed
× energy consumed per unit of GDP
× GDP per capita
× population
E = The amount of CO2 emissions from the consumption of fossil fuel
FEC = The amount of fossil fuel consumption
TEC = The total primary energy consumption
GDP = Gross domestic product
POP = Population
Hence, emissions in country i can be expressed as:-
Ei ≡ (Ei / FECi) × (FECi /TECi) × (TECi / GDPi) × (GDPi / POPi) × (POP