Deck 13: Incentive-Based Strategies: Market Trading Systems

Question 1

Transferable emission permit schemes provide _______ incentive to invest in R&D to find cheaper methods of reducing emissions as emission taxes that achieve the same level of abatement.

A)a different
B)the same
C)a greater
D)a lower

Answer 1

B

Question 2

The EPA's CAP market allowed firms to use whatever means they found the cheapest to reduce SO₂ emissions

A)but required specific technology that had to be used
B)rather than dictating the technology to be used
C)and placed pollution control objectives in the hands of the polluters
D)and sets the price for which discharge permits will be exchanged

Answer 2

B

Question 3

Refer to the figure above.Assume that the firm is facing MAC₁ and that it has adjusted its permit holdings to e₁.What is the firm's incentive to engage in R&D to reduce abatement costs to MAC₂?

A)(a+b)
B)(a+c)
C)(a+b+c)
D)(a+b+c+d)

Answer 3

B

Question 4

A polluter will ______ a permit if the price is ________ its MAC of controlling emissions.

A)sell; less than
B)buy; greater than
C)buy; less than
D)all of the above

Question 5

The first problem encountered when trying to institute a cap-and-trade program is

A)assigning a regulatory agency to oversee the program
B)establishing a market for permits
C)setting the price for permits
D)the initial distribution of the permits

Question 6

The EPA program that established an allowable base rates for the amount of lead in the gasoline that oil refineries produced and allowed for the trading of excess allowances is an example of

A)offset trading
B)emission rate trading
C)carbon offset markets
D)renewable portfolio requirements

Question 7

The EPA's CAP program for SO₂ gave producers an incentive to look for cheaper ways of lowering emissions because

A)an emissions rate was mandated for firms and the penalties were high
B)increasing scarcity of permits drove their price up
C)offset trading offered large trade gains
D)emissions taxes were enforced with vigor

Question 8

The most direct way to accomplish a reduction in the number of permits for a cap-and-trade is

A)initial distribution of permits is dated according to the year in which it may be used, after which a declining set of permits would be issued
B)regulating agencies could buy permits and retire them
C)new laws could be adopted periodically to adjust the distribution and number of permits
D)regulators could request that firms leave the industry

Question 9

Cap-and-trade programs require an established set of rules for trading.It is recommended that the regulating agency set the rules and not interfere with the market, because market interference

A)increases transactions costs
B)causes uncertainty
C)interferes with the efficient flow of permits
D)all of the above

Question 10

In a cap and trade program, permits flow from polluters with relatively ________ abatement cost curves to polluters with relatively ___________ abatement cost curves.

A)low; high
B)high; low
C)steep; flat
D)flat; steep

Question 11

The ________ established an innovative permit-trading scheme for the control of airborne SO₂ emissions in ________.

A)1990 Clean Air Act Amendments; Canada
B)1990 Clean Air Act Amendments; the United States
C)Canadian Environmental Protection Act; Canada
D)Cross-State Air Pollution Rule; the United States

Question 12

Refer to the figure above.Assume that the firm is facing MAC₁ and that it has adjusted its permit holdings to e₁.What is the firm's permit purchase costs?

A)(e+d+b)
B)(c+d+e)
C)(e+d)
D)(e)

Question 13

Transferable emission permit programs work best if there is little competition among buyers and sellers of permits.

A)there is asymmetric information between buyers and sellers
B)many different markets available for buying and selling permits
C)the permit market is competitive among buyers and sellers
D)none of the above

Question 14

A polluter will ________ its emissions and sell its excess permits on the market if the market price of permits is ________ its MAC at its chosen emission level.

A)reduce; less than
B)reduce; greater than
C)increase; less than
D)increase; greater than

Question 15

The EPA's CAP program for _________ was the first large-scale example of a system of transferable emission permits tried in the United States.

A)leaded gasoline
B)SO₂
C)NO_x
D)CO₂

Question 16

Refer to the figure above.Assume that the firm is facing MAC₁ and that it has adjusted its permit holdings to e₁.What are the firm's abatement costs?

A)(a+b)
B)(a+b+c)
C)(a+b+c+d)
D)(e)

Question 17

Cap-and-trade is a trading system designed to achieve more efficient pollution control.It can be described as:

A)a program that issues tradable permits in order to limit aggregate emissions
B)a program that regulates the rate at which pollutants are emitted
C)a program that sets a standard for emission that no firm can exceed
D)a program that allows new firms to pay existing firms to reduce their emissions below a standard

Question 18

In cap-and-trade programs where the damages are non-uniform, there is a direct trade-off between the hydrological and meteorological reasons for restricting trade and

A)the economic efficiencies that result from competition
B)the political resistance to taxation
C)the enforcement authority of the EPA
D)the incentives for R&D

Question 19

Emission rate trading is a trading system designed to achieve more efficient pollution control.It can be described as:

A)a program that issues tradable permits in order to limit aggregate emissions
B)a program that regulates the rate at which pollutants are emitted
C)a program that sets a standard for emission that no firm can exceed
D)a program that allows new firms to pay existing firms to reduce their emissions below a standard

Question 20

One of the ways that initial pollution rights can be allocated in a cap and trade program is by equal distribution among all existing sources of a particular effluent.Which of the following is a reason that equal distribution of initial pollution rights among polluters is flawed?

A)existing firms within an industry vary in size
B)firms in different industries may vary in value of output
C)this method does not reward those who have invested in emissions reductions already
D)all of the above

Question 21

Which of the following statements about abatement subsidies is NOT true?

A)Environmental groups dislike abatement subsidies because they appear to reward polluters.
B)Governments like abatement subsidies because they are relatively inexpensive to implement.
C)Abatement subsidies are popular with firms.
D)Abatement subsidies create perverse incentives for firms to increase emissions when their base levels are being set.

Question 22

Refer to the table above.If a regulatory agency simply mandated that the firm could emit a maximum of 5 tons/month and there were no emission charges, what would the firm's total abatement costs be?

A)$100
B)$265
C)$500
D)$765

Question 23

Refer to the figure above.The firm is facing an emissions charge of t and an abatement cost curve of MAC₁.If the firm is able to lower its abatement cost curve to MAC_2, and it now faces an emissions standard of e₁, the firm will

A)emit at level e₁ and save (d+e)
B)emit at level e₁ and save (d)
C)emit at level e₂ and save (c+d)
D)emit at level e₁ and save (d+e)

Question 24

When we compare the monitoring and enforcement requirements between emissions charges programs and transferable discharge permits, it is clear that

A)transferable discharge programs require more monitoring and enforcement efforts
B)emissions charge programs require more monitoring and enforcement efforts
C)there is little difference between the programs with regard to monitoring and enforcement
D)neither program requires centralized monitoring and enforcement

Question 25

Refer to the figure above.A firm facing an emissions charge of t and an abatement cost curve of MAC₁ will emit e₁ and

A)face abatement costs of (a+b+c+d+e)
B)face abatement costs of (a+b+d+e)
C)face abatement costs of (d+e) and taxation charges of (a+b+c)
D)face abatement costs of (d+e) and taxation charges of (a+b)

Question 26

Refer to the figure above.The firm is facing an emissions charge of t and an abatement cost curve of MAC₁.If the firm is able to lower its abatement cost curve to MAC_2, it will

A)emit at level e₁ and save (d+e)
B)emit at level e₁ and save (d)
C)emit at level e₂ and save (c+d)
D)emit at level e₁ and save (d+e)

Question 27

Emission charges is a term that is synonymous with

A)emission subsidies
B)emission taxes
C)emission prices
D)emission permits

Question 28

Taxes are transfer payments - payments made by the polluters to the public sector and eventually to those in society who are benefited by the resulting public expenditures and therefore

A)they are not a cost to the firm
B)they are not a social cost of policy
C)the costs associated with collection are not considered enforcement costs
D)all of the above

Question 29

Refer to the table above.The firm above faces an emissions charge of $100 per ton/month.If the firm chooses to emit 5 tons/month what is the firm's total cost?

A)$265
B)$600
C)$765
D)$865

Question 30

There are two types of incentive based environmental policies

A)market-based systems and technology standards
B)market-based systems and taxes/subsidy programs
C)taxes/subsidy programs and technology standards
D)technology standards and emissions standards

Question 31

Emissions taxes lead to

A)a larger reduction in emissions from firms with lower abatement costs
B)a larger reduction in emissions from firms with higher abatement costs
C)an equal distribution of emissions reductions among firms with different abatement costs
D)a different emission tax applied to firms depending on their abatement costs

Question 32

When multiple firms are emitting, an emissions tax controls emissions in a way that

A)satisfies the equimarginal principle
B)encourages firms to emit to the point where there marginal abatement cost equals the tax
C)equalizes marginal abatement costs across all firms
D)all of the above

Question 33

Refer to the table above.The firm above faces an emissions charge of $100 per ton/month.If the firm chooses to emit 0 tons/month what is the firm's total cost?

A)$290
B)$1290
C)$2235
D)$1235

Question 34

If regulators are considering an emissions tax, they will be more uncertain about the resulting level of emissions if

A)firms in the industry experience a steep abatement cost curve
B)firms in the industry experience a flat abatement cost curve
C)the firms are located in a rural area
D)the firms are located in an urban area

Question 35

In a competitive market for transferable discharge permits, the demand curve is equal to

A)the aggregate supply curve for all firms supplying permits
B)the aggregate marginal abatement cost functions of all the firms participating in the market
C)the aggregate production curve for all firms participating in the market
D)the aggregate emissions curve for all firms participating in the market

Question 36

Which of the following is an example of a market based system for pollution control?

A)taxes on emissions
B)subsidies for abatement
C)transferable discharge permits
D)deposit refund programs

Question 37

Transferable discharge systems and emission charge systems seek to remove technical pollution control decision making from central administrators and place it into the hands of

A)the voters
B)the EPA
C)the polluters themselves
D)those most harmed by pollution

Question 38

Refer to the table above.The firm above faces an emissions charge of $100 per ton/month.At what level of emissions does the firm minimize total abatement cost?

A)10
B)5
C)4
D)0

Question 39

In a cap-and-trade program, as polluters buy and sell permits, they move to a situation where

A)all firms' marginal abatement costs are equal to the price of the permits
B)the demand for permits will exceed the supply
C)total abatement costs are equal to the total amount spent on permits
D)the total amount spent on permits is less than the total amount spent on abatement

Question 40

Refer to the table above.If the firm above faced an emissions charge of $150 per ton/month, at what level of emissions does the firm minimize total abatement cost?

A)3
B)4
C)5
D)8

Question 41

Refer to the table above.What level of emissions would a firm choose given the marginal abatement cost and the subsidy level detailed above?

A)Indeterminate
B)0
C)4
D)9

Question 42

Which of the following is true when emission charges are compared to emission standards

A)Polluters pay both emission charges and abatement cost charges under a policy of emissions charges, but only pay for abatement costs when emission standards are in place
B)Polluters automatically reduce their emissions when abatement costs decline under a policy of emissions charges, but do not reduce their emissions automatically when standards are in place and abatement costs decline
C)Polluters will realize bigger pollution control cost reductions from R&D efforts under a policy of emission charges than under a policy of emission standards
D)all of the above