Chapter 6: Externalities In Action. Outline Addressing externalities: should we focus on prices or on quantities? Understand why the answer is that “it depends…” Two problems Some highlights from Chapter 6 Acid rain: the problems with the 1970 Clean Air Act Emissions trading
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The U.S. is currently responsible for nearly 25% of the planet’s carbon dioxide emissions.
Developing counties like China and India emit large quantities of greenhouse gasses.
Japan contributes only 5% of annual emissions.
Yet the treaty calls for the U.S. to reduce emissions a lot.
It is fairly expensive for the U.S. to reduce its emissions.
And the requirements are lower, too.
It is easier for Russia and others to reduce their emissions.
Price of carbon reduction
The total cost to the U.S. is 440x$210.
The overall cost, with emissions trading, is $32 billion.
With emissions trading, the supply curve is summed horizontally.
The cost of worldwide emission reduction is $50 per ton with ST.
The total cost to Russia and others is 190x$20.
The U.S. buys 400 permits (440-40).
The overall cost, with no emissions trading, is $96 billion.
Carbon Reduction (millions of metric tons)