Question

what are the pros and cons associted with i) emission standard, and ii) emission fees? Show on a graph how imposing an emission fee can lead to technological progress via cost savings

Answer 1

i) Pros and Cons of Emission Standard:

Pros of Emission Standard:

i) Reduction in the quantity of emission produced

ii) Improves environmental sustainability

iii)Reduction in overall fossil fuel consumption

Cons of Emission Standard:

i) Increase in overall operation cost

ii) Reduction in efficiency of vehicles / vessels

iii) Potential delay in travel due to restrictions

iv) Increase in transit time of goods and associated costs

ii) Pros and Cons of Emission Fees

Pros of Emission Fees:

1) Make polluters pay external cost of emissions

2) In theory, it enables greater social efficiency, as we pay full social cost.

3) Raises revenue which can help in mitigating effects of pollution

4) Encourages firms and consumers to look for alternatives e.g. wind / solar power

5) Reduces environmental costs associated with excess emission

Cons of Emission Fees:

1) Businesses claim higher tax cost which can discourage investment and economic growth.

2) It may encourage tax evasion i.e. firms polluting secretly to avoid fees

3) It can be difficult to measure external costs and how much should be actual fees

4) Administration cost in measuring pollution and collecting fees

5) Firms may shift production to countries not applying any emission fees.