ENVIRONMENTAL ECONOMICS ECON 4545
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This 7 page Class Notes was uploaded by Bridie Batz on Friday October 30, 2015. The Class Notes belongs to ECON 4545 at University of Colorado at Boulder taught by Edward Morey in Fall. Since its upload, it has received 18 views. For similar materials see /class/232128/econ-4545-university-of-colorado-at-boulder in Economcs at University of Colorado at Boulder.
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Date Created: 10/30/15
Econ 4545 Environmental Economics Feburary 16 2008 Review Questions Set 5 Don t be afraid to research the facts using Google Google Scholar the EPA website etc Mobile Source Pollution 1 Make three arguments that the US emissions standards on new cars are too stringent answer 1 there should not be any standards for cars driven in places where there is effectively no mobilesource pollution e g North Dakota 2 Any standard is too stringent Drivers should be given the correct incentives to internalize the extemalities produced by their driving and then allowed to choose the cheapest way for them to comply For example if the appropriate pollution tax was imposed on emissions everyone would not necessarily choose to drive a car with lower emissions Some for example might choose to drive their high emissions car less 3 Once the manufacturer meets the standard they will have no incentive to develop cars that will emit even less 4 Standards are difficult to change as circumstances change 5 The problem is old cars they pollute way more high emission standards on new cars makes them more expensive and causes people to drive their old highlypolluting clunkers longer 2 Devise a plan for controlling automobile emissions Discuss the efficiency and equity implications of your plan Is it politically feasible 3 What do you think of vehicle inspection and maintenance programs for as a method to reduce emissions Should they be mandatory in nonattainment regions 4 Imagine an emissions charge that is a function of the amount of emissions measured by inspection and the number of miles driven Should the rate be a function of where the car is registered 5 Why should vehicles that will be driven in states like North Dakota and Montana have to meet the same emissions standards as vehicles that will be driven in places like Denver L A and New York Make your best argument 6 Are automobiles a significant contributor to the production of greenhouse gases If so how and why What would need to be done to reduce their contribution Suggest a feasible method of reducing the amount of C02 emissions produced by cars Why are car makers concerned about policies to reduce the rate of global warming 7 What are the CAFE Corporate Average Fuel Efficiency standards 8 Is it feasible to taX vehicles on the basis of the amount of pollution that they generate each year 9 Why did the auto industry like the EPA s proposal to reduce the amount of sulfur in gasoline 10 What are the equitydistributional implications of reducing pollution with an emissions taX or a gas tax 11 Write a brief critique of the ideas and facts presented in the article by Ian Parry at Resources for the Future 12 When one considers reducing pollution with a gas taX what is the relevance of the price elasticity of demand for gasoline As part of your answer define the price elasticity of demand for gasoline What determines this elasticity Is it likely to be smaller in the long run 13 Do old cars pollute significantly more than new cars Discuss the implications of this for efficiently reducing the pollution from cars As part of your answer discuss vehicle buy back programs How do the State of Colorado emissions standards for old cars differ from those for new cars think about the vehicle inspection program 14 Should emissions from snowmobiles be regulated uniformly across the country Argue it both ways 15 Do you think it is possible to reduce auto emissions to their efficient level by moral suasion and making driving of highly polluting gas guzzlers uncool ON Discuss the advantages and disadvantages of a tax on gasoline as a way to reduce the amount of pollution produced by cars Make a distinction between C02 emissions and other pollutants As part of your answer discuss the general principles that theory suggests one follows in the use of taxes to internalize negative extemalities Answer The salient facts are that for most types of exhaust emissions there is not a onetoone relationship between the amount of gasoline burned and the amount emitted That is it is possible to reduce emissions per gallon of gas burned what we call abatement technology The exception is C02 emissions where the relationship is one to one Theory tell us that the most efficient way to reduce emissions with a tax a Pigouvian tax is to tax the emission directly rather than taxing an input in this case gas in the production of the emissionsl For example if one wants to reduce particulate emissions from mobile sources the cost of achieving a given reduction in emissions will be lower if the one taxes the mobile source in terms of the quantity of particulates emitted rather than taxing the gasoline the car or the miles driven The previous statement is based on the assumption that one can costeffectively tax the emissions If the intent is to reduce C02 emissions from mobile sources a tax on gasoline is cost minimizing because it is equivalent to a tax on C02 For other types of emissions the argument for a gas tax is a secondbest argument It is easier to tax gasoline than it is to tax emissions directly However think of why a tax on gas is inferior to a tax on emissions The tax on gas gives the driver no incentive to reduce emissions holding gas consumption constant For example with a gas tax there is no incentive to keep you car pollution equipment in working order to purchase a car that get the same mpg but pollutes less to purchase pollutioncontrol devices The technology for measuring emissions from mobile sources has been changing drastically making it more cost effective to tax emission directly or at least closely approximating a tax on emissions The government knows the type and age of our vehicle They can also easily nd out miles driven per year Given the two they can estimate how much your car produces of each taxed pollutant in a year and then send you a bill with your registration Of course this estimate will not account of how well tuned you keep your vehicle or how you drive it slow fast stop and go The above estimate can be significantly improved upon by testing the car once a year for the amount of emissions it actually produces something we currently do Of course this 1 If there is a one to one relationship between the level of emissions and another commodity input or output would also not be perfect One might imagine that in the future there will be some device that will directly measure your car s emissions Such devices exist it is just a question of costs An issue with both gas taxes and emission taxes is that we only want to taX emissions that case damage If I go on vacation to South Dakota I am doing no damage so the gas burned on the trip should not be taxed neither should the emissions Gas taxes can easily vary from place to place but how would Boulder know how many of my miles driven last year were in the sticks would I send them a postcard from all of my trips My answer to here has compared gas taxes with direct taxes on emissions In a perfect answer one would compare gas taxes with other methods of reducing pollution from mobile sources such as mandatory pollution control devices 1 Why is everyone including me driving around in a SUV if they are so bad for the environment Argue that what is individually rational and optimal is not optimal from a societal perspective Answer when I look at the benefits and costs to me of driving an SUV it is the perfect car I live down a dirt road that gets a lot of snow drive in a lot in snow have a wife kid and big dog carry around a lot of stuff and it safe at least for those in it I also know that my driving an SUV has little effect on the total amount of pollution in the Denver Boulder area Simply put I don t pay the full costs of my driving an SUV so have no reason to take those costs into account If society wants me to drive what is best for me to drive from society s perspective the government needs to give me the correct incentives which they do not 7 a classic extemalitytype market failure Everyone driving an SUV is not efficient from society s perspective because the social cost of driving them is higher than the costs to the operators I impose a burden on others that I don t have to pay for 7 lucky me but I wish the cost of the burden was imposed on everyone else who imposed such a burden In fact I would prefer the cost of polluting was imposed on taxing the other commodity is equivalent to taxing the emissions everyone including me but until it is I will do what is optimal for me in the present situation 2 Explain to an intermediate micro student why raising the Federal tax on gasoline by 50 cents is will cause the price of gasoline to rise by less than 50 cents What is going on What determines how much the price increase will fall below 50 cents Answer Much of the oil we consume is extracted and sold to us by entities with excess market power e g OPEC and the big oil companies Given this they act almost like a monopolist when they make their pricing decisions in that they face a downwardsloping demand curve for their product Their goal is to maximize their pro ts When the gas tax is raised by the largest consumer of oil us it sifts OPEC s effective demand curve for oil in to the left In explanation at x dollars a barrel they now can sell less because the price for the consumer is x plus the tax Their profits will drop because of the tax and profits max implies that they will not want to raise their price by the amount the tax increases 7 doing so would not be profit maximizing The steeper the demand curve for oil the more price elastic it is the less they will raise their price Look at the standard monopoly pricing graph and then shift in the effective demand function Wor39l d demand Iliilll Demand OPEC perspective World demand more details see the notes http wwwcolor adoedu Economics mor ev 4545 auto OPECandGasTaxe sdf 3 Explain why increasing the gas taX is probably not the best way to reduce traffic congestion Answer To deal with the inef ciencies associated with congestion one would want to make the private cost of driving on congested roads equal to the social cost Since all roads are not all equally congested and the amount a road is congested often varies by time of day and day of week the wedge between the private and social cost of driving that is due to congestion effects varies greatly Many roads are never congested other very congested but only at certain times of the day Therefore the tax or restriction on driving needs to vary by time and place A gas taX will not do that it will reduce overall driving but if will have no in uence on where and when people drive It is a very blunt tool if used to address congestion extemalities One either needs roadspeci c taxes tolls or other roadspeci c access restrictions is wants to achieve the efficient pattern of congestion 4 Many students of the environments feel that we all should be required to drive a car that uses an alternative fuel electricity biofuel ethanol French fry grease etc Make your best argument that they are misguided The issue is not whether they are or are not misguided the issue is you need to argue on economic grounds that they are misguided Answer Put simply we want drivers to take all of the environmental costs of their driving into account when they decide what where and how much to drive If they are given the incentive to do this they will minimize the cost to them of the tax or regulation that is they will minimize the cost ofthe policy on them 7 this is good they are part of society The question is would everyone choose to drive a particular type of car if they had the correct incentives to internalize the external costs of their driving The answer is probably no Think of it another way If the correct pollution tax was imposed would everyone choose to drive a hybrid If the answer is no then forcing everyone to drive a hybrid will not be an efficient outcome If there was for example a pollution tax different individuals would adjust to the tax in different way some would drive less some would tune their car some would buy a different car and some of those who bought a different car would by a hybrid Requiring everyone to use the same pollutionreducing device is very restrictive 7 much like saying to reduce crime everyone has to go to bed at 900 pm it will reduce crime but not in the cheapest way 7 lots of people like to stay up late Requiring that everyone has to use the same device is also dynamically in exible What if a better device is invented Will there be an incentive to develop better pollutionreduction devices A pollution tax gives manufacturers an incentive to develop cars that pollute less requiring everyone to drive a certain type of hybrid does not
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