Deck 6: The Economics of Environmental Regulation Ii: Transferable Emission Credits, and the Macroeconomic Effects of Environmental Regulation

Question 1

The purpose for creating a tradable emission credit system is to substitute the
market for pollution rights.

Answer 1

False

Question 2

A system of transferable credits operates on the basis that there is a legally
sanctioned right to pollute.

Answer 2

True

Question 3

Transferable credits work better when the number of parties involved in the
exchange of credit are limited or capped.

Answer 3

False

Question 4

A bubble policy is generally used by a firm that has only one source of pollution
so that it remains in compliance with a set emission standard.

Question 5

The benefit of pooling together all of a firm's emissions as one source is that the
firm does not need to meet standards for each source.

Question 6

The banking policy allows firms to use their initial credit allotment over time.

Question 7

The offset policy is used can only be used when the level of a given pollutant
exceeds the level permitted by the federal standards.

Question 8

There has been considerable resistance in the application of emission trading
program particularly in the member states of the European Union (EU) and some Latin American countries.

Question 9

In the presence of uncertainty, when control costs that are higher than expected, a
regulatory scheme based on transferable pollution credits can result in a cleanup
costing more than the socially optimal level.

Question 10

Hot-spots are any areas that contain high local concentration of any pollutant.

Question 11

In the United States, the acid rain program (ARP), was established under Title IV
of the 2009 Clean Air Act Amendment which requires major emission reduction
of sulfur dioxide (SO2) and nitrogen oxide (nox).

Question 12

Although not a human health issue, the accumulation over time of sulfur dioxide
(SO2) and acid rain depositions on lakes, streams, and forests are believed to
cause substantial damage to aquatic organisms and trees.

Question 13

Most findings since the 1980s show that environmental regulations have actually
contributed to productivity slow-downs in the US and other countries.

Question 14

Strictly enforced environmental policy could, in effect, force firms to adopt
efficient pollution abatement technology, which will lead to a competitive
advantage in the long-term.

Question 15

Underestimation of the cost of environmental regulations remains a serious
concern.

Question 16

Which one of the following statements about a system of tradable carbon permits is false?

A) An advantage of carbon permits is that greenhouse gases could be reduced at the lowest
cost.
B) Nations can emit more carbon if they purchase additional permits.
C) The equilibrium price of a carbon permit depends on the willingness to pay for carbon
emissions.
D) A carbon permit system would require each country to meet their emissions targets.
E) Nations which exceed their targets can sell permits to other countries.

Question 17

Which of the following is true about the first large-scale use of tradable pollution credits in the United States?

A) They were introduced with the passage of the 2010 Clean Air Act Amendments.
B) The Act introducing them made use of market-based approaches.
C) The credits were primarily designed to reduce carbon dioxide (CO2) emissions
from power plants.
D) The credits were primarily designed to reduce methane (CH4) emissions from
power plants.
E) All of the above are true.

Question 18

Which of the following is a (are) characteristic(s) of the US acid rain program?

A) There is total annual emissions goal set for the nation.
B) The EPA limits individual electric utility plants by issuing a fixed number of
Tradable allowances on the basis of projected emissions.
C) The EPA limits individual electric utility plants by issuing a fixed number of
Tradable allowances on the basis of historical emissions.
D) Both a and b .
E) Both a and c .

Question 19

What does the empirical evidence, on the whole, concerning the relationships between environmental protection, the economy, and jobs reveal?

A) The impact of environmental regulations on jobs is a net loss.
B) The impact of environmental regulations on jobs is a net gain.
C) The impact of environmental regulations on jobs is a zero.
D) There is no evidence to link job losses with state environmentalism.
E) There is no empirical evidence available.

Question 20

What is the basis for the Porter Hypothesis?

A) The recognition that the market for pollution abatement technology is expanding
Everywhere.
B) Firms that save costs by not adopting new pollution technologies will have
Competitive advantages.
C) Strictly enforced environmental policy would have the effect of forcing firms to
Adopt efficient pollution abatement technology, but there will be long-term costs
That reduce competitive advantage.
D) Strictly enforced environmental policy would have the effect of forcing firms to
Adopt efficient pollution abatement technology, but there will be short-term costs
That reduce competitive advantage.
E) All of the above are applicable.

Question 21

Clearly define property rights are important because…

A) Emission trading programs cannot work without them.
B) Governments cannot set limits for pollution levels without them.
C) Polluters will pollute less without them.
D) The Porter Hypothesis calls for them.
E) All of the above.

Question 22

Which of the following would allow a polluter to treat all its different types of sources of pollution as a single source?

A) Bubble policy.
B) Banking policy.
C) Porter Hypothesis policy.
D) Offset policy.
E) All of the above.

Question 23

Which of the following would relieves polluters from making impulsive decisions on what to do about their emission credits immediately upon the retirement of an existing source of pollution?

A) Bubble policy.
B) Banking policy.
C) Porter Hypothesis policy.
D) Offset policy.
E) All of the above.

Question 24

Figure 6A

-Refer to Figure 6A. Assume that government regulation limits sulfur dioxide emissions to 150 tons per year. Also assume that Firm 1 cannot reduce its emissions below 100 tons per year. Which of the following would apply in this situation?

A) The government would necessarily increase the emission limits to over 150 tons to be
fair.
B) The marginal control costs for firm 1 will be higher than those for firm 2.
C) The marginal control costs for firm 2 will be infinitely high.
D) The marginal control costs for firm 2 will be less than $500.
E) The marginal control costs for firm 2 will be $1000.

Question 25

Figure 6A

-Refer to Figure 6A. Why do the two firms not pollute at points R and S respectively when pollution credits and regulations exist ?

A) They do because the points R and S are Pareto optimal.
B) They do not because only point R is Pareto optimal.
C) They do not because only point S is Pareto optimal.
D) They do not because point E is Pareto optimal.
E) They do because their marginal control costs are minimized at points R and S.