Using everything you have learned so far in this course, describe thoroughly, th

Question

Using everything you have learned so far in this course, describe thoroughly, the best environmental and energy policies for the US to enact over the next 5-10 years in order to reduce the carbon footprint of energy production and consumption. Assume that the government is NOT in the business of picking winners and losers among energy sources (oil, natural gas, solar, wind, etc). What I’m asking for is broad economic policy (regulations, taxes, subsidies, tradable vouchers, etc). Explain what economic tools you would use and how you would implement them and then rationalize your choice by explaining the economic implications of each part of your policy and why these policies are “optimal” in your view.

Explanation / Answer

The problem of carbon emissions is that market didn't exist for carbon emissions and even if it occurs it is very thin. Thus it leads to market failure. So what government must do us to create market for carbon emissions . Government can use cap and trade policy ie it must put cap on the total number of permitted emissions and after that allows trading in emissions through selling permits . This will bring efficiency as equimarginal principle will hold.

Government can made mandatory to install equipment of certain quality. This is costly as it require surveying each industry and results are also uncertain..

Government can impose taxes on those industries which are involved in emissions.

I think cap and trade is optimal because cost is almost zero and efficiency is maximam because equimarginal principle holds .

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