This lesson introduces market-oriented environmental policy and explains how pollution charges encourage firms and households to reduce pollution when doing so is less costly than paying a charge.
Market-oriented policies use incentives to give polluters flexibility in deciding how to reduce emissions. The three main categories are pollution charges, marketable permits, and better-defined property rights. Each addresses shortcomings of command-and-control rules in a different way.
All flashcards
What is a pollution charge?
A tax on the quantity of pollution emitted, giving polluters an incentive to reduce emissions.
What is a marketable permit?
An authorization to emit a specified quantity of pollution that can be bought or sold.
What is a shrinking permit cap?
A limit on permitted emissions that decreases over time.
How can clearly defined property rights help address an environmental externality?
They clarify legal responsibilities and give parties incentives to seek lower-cost ways to reduce harm.
What is the main cost-effectiveness advantage of market-oriented environmental tools?
Their flexibility can help achieve a chosen pollution reduction at lower cost.
Quiz questions
Which set lists the three main categories of market-oriented environmental tools?Answer: Pollution charges, marketable permits, and better-defined property rights.
In a marketable permit program, what does trading change while the total emissions cap remains in place?Answer: Which firms make reductions and how much each firm reduces.
What was the purpose of the 1990 U.S. Clean Air Act amendment's sulfur dioxide permit approach for power plants?Answer: To reduce sulfur dioxide emissions to half their 1980 levels.
Why might a rule that automatically restricts land use after an endangered species is discovered discourage landowners from reporting it?Answer: Discovery may impose costs on the landowner without offering a conservation reward.
When might pollution charges be more practical than permit trading?Answer: When millions of small emitters are unlikely to trade permits with one another.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.