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3. Explain why subsidies for pollution abatement equipment, even if they
result in an efficient level of pollution abatement, will not result in an efficient
resource allocation.
8. What is the externality associated with an additional individual’s driving on
a congested road? How do tolls help alleviate this externality? How should the
toll be set?
10. Many economists are worried that unless all countries are required to
reduce their levels of greenhouse gas emissions, reductions in emissions in one
country may be partially offset by increases in another. Explain how this might
ANSWER:3) It is quite simple. Resources are used to offer subsidy. The resources used so
could have been used elsewhere in productive manner. There are low cost
methods to achieve pollution abatement like tradable permits. So using this
method is not in interests of efficiency
Traffic congestion
When a driver enters into a road he gains some mobility and bears some cost
of driving. But as he enters into road the space to other driver becomes
congested. This congestion cost is not born by this driver but bear other driver.
This is an example of negative externality.
Toll road is not for all drivers. It is for them who pay for it. It is the simple and
strong argument behind toll.
Actually negative externality in this case can be reduced as toll road is no more
public goods; it slightly changes its nature. If toll reduces the road congestion
then it implies that externality also is reduced.
Variable toll is very useful. It depends on the time of day whether it is peak
hour or free hour, size of the vehicle etc. This method is very reasonable as it
reflects that the rate of toll is determined by the degree of congestion a driver
is making.
"Joint implementation" is a programme under the Kyoto Protocol that allows
industrialized countries to meet part of their required cuts in greenhouse-gas
emissions by paying for projects that reduce emissions in other industrialized
The operation of the joint implementation mechanism is similar to that of the
"clean development mechanism”. To go ahead with joint implementation
projects, industrialized countries must meet requirements under the Protocol
for accurate inventories of greenhouse-gas emissions and for detailed
registries of emissions "units" and "credits”.
If these requirements are met, countries may carry out projects and receive
credits beginning in 2008.
Under the Kyoto protocol most developed nations other than the US
committed themselves to targets for cutting or slowing their emissions of the
key greenhouse gases that cause climate change.
The targets varied between nations. Some were allowed to increase their
emissions by a certain amount; others were required to make significant cuts.
The Kyoto mechanisms:
The Netherlands has a 6% emission reduction commitment under the Kyoto
Protocol (2008-2012) targets and aims at a 10% reduction in post-Kyoto targets
The provision of JI projects can stimulate further actions from the part of
suppliers and market players and therefore enhance the dynamic
effectiveness of the hybrid scheme.
An integrated JI scheme can be quite efficient in terms of achieving targets set
for both instruments, depending of course on the target level. More
specifically, given the ongoing energy market conditions in the Netherlands
and the cumulative experience from JI and previous energy efficiency policies,
electricity and gas suppliers can reduce their overall compliance costs through
opting in for voluntary actions.
The basic idea of JI is that industrialized countries can achieve their GHG
emission reduction commitments partly on the territory of other countries via
emission reduction co-operation, using lower marginal abatement costs.
In The Netherlands, 33 million tonnes of CO2-equivalent emission reduction
are to be achieved under JI projects as one of the tracks to reach the 6%
reduction target for the country under the Kyoto Protocol
Stimulate sustainable development through technology transfer and
Help countries with Kyoto commitments to meet their targets by
reducing emissions or removing carbon from the atmosphere in other
countries in a cost-effective way
Encourage the private sector and developing countries to contribute to
emission reduction effort