Market Based Policies and Cost-EffectivenessSlides [link]
Cost effectiveness overview
- Read KO pages 143-162
- What is a “market-based” environmental policy? How do these approaches compare to classic prescriptive regulation (also often referred to as command and control).
- This Marginal Revolution University video provides an overview of “command and control” regulation.
- Portney 2003 provides a refresher course on market based environmental policy.
- Watch Catie Hausman explain a carbon tax
- Read KO pages 168-176
- What does it mean for an environmental policy to be “cost-effective”?
- What is it about taxes that makes them cost-effective?
- This UMass video walks through the intensive and extensive margin effects of a carbon tax.
- Tol video on emissions taxes
- RFF explainer on Carbon Pricing 101 goes over the main benefits of pricing pollution.
- IMF economist Ian Parry makes the case for taxing carbon
- Read KO pages 177-179
- Watch Jodi Beggs explain cap-and-trade in three short videos here, here and here.
- Describe how a cap-and-trade policy works in your own words (a paragraph or less)
- What is it about cap-and-trade that makes it cost-effective?
- Cost effectiveness provides a more modest goal for policy design. Know what it is, compared to efficiency, and what the properties of a cost-effective outcome are.
- Command and control policies are unlikely to be cost-effective. Be able to explain why.
- Taxes achieve cost-effectiveness by construction. Understand how they work and why they are cost-effective.
- An alternative approach is to define a property right over the pollutant and allow polluters to trade.