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PP5269M - Environmental Economics and Public Policy
AY2024/25
Assignment 2
Due: 11:59pm, November 7, 2024
1. True, False, or Uncertain and explain (2*2’=4’)
(1) The market-based environmental regulations are more efficient than command and controls because they are cost-effective (firms will try to achieve the abatement goal using the lowest cost way).
(2) A sustained-yield harvest is always desirable.
2. Which of the following carbon revenue recycling schemes would be the most efficient? _ _ (2’)
a. Tax cut (such as income, capital, consumption)
b. Lump-sum rebate to households
c. Subsidizing green technologies
d. Increasing public expenditure
3. Please describe the Difference-in-Differences (DID) model, and name one scenario where you can apply this method. (4’)
4. Two companies require identical skills and training from their workers. Both employ 10,000 people. On average, Safety First has one worker fatality per year, while Safety Second has two worker fatalities per year. Jobs at Safety First pay $50,000/year, while jobs at Safety Second pay $50,500/year.
(1) Why do these jobs with identical requirements pay different salaries, based on the information presented here? (1’)
(2) What is the risk for a worker of a fatal accident at each company? What is the pay premium associated with that risk? (1’)
(3) Do you expect this value of a statistical life to be appropriate for the population as a whole? Why or why not? (2’)
5. The Kallang River has two polluting firms on its banks. Acme Industrial and Creative Chemicals each dump 100 tons of glop into the river each year. The cost of reducing glop emissions per ton equals $10 for Acme and $100 for Creative. The government wants to reduce overall pollution from 200 tons to 50 tons.
(1) If the government knew the cost of reduction for each firm, what reductions would it impose to reach its overall goal? What would be the cost to each firm and the total cost to the firms together? (1’+1’+1’=3’)
(2) In a more typical situation, the government would not know the cost of pollution reduction at each firm. If the government decided to reach its overall goal by imposing uniform reductions on the firms, calculate the reduction made by each firm, the cost to each firm, and the total cost to the firms together. (1’+1’+1’=3’)
(3) Compare the total cost of pollution reduction in parts (1) and (2). If the government does not know the cost of reduction for each firm, is there still some way for it to reduce pollution to 50 tons at the total cost you calculated in part (1)? Explain. (1’+1’=2’)
6. It is 2030 and Acme Electricity company must manage its carbon emissions from burning natural gas to generate electricity. For this it must employ a carbon capture and storage (CCS) plant to abate carbon emissions. In the absence of any abatement, Acme would generate 50 tons of carbon. It has a CCS plant on the West Coast with the following cost function for carbon abatement: Abatement cost = 10QW + 2QW2, where QW is the tons of carbon abated at that plant; the marginal cost of abatement is MC = 10 + 4QW.
(1) Acme is not necessarily going to abate all its emissions. For each ton of carbon emissions that Acme does not abate it must pay an emission tax of $50 per ton emitted. How much carbon will Acme choose to abate? How much does Acme spend on abatement? How much does it spend on payment of emission taxes? (1’+1’+1’=3’)
(2) How much does Acme decide to abate if the emissions taxis raised to $90 perton? How much does Acme spend on abatement? How much does it spend on payment of emission taxes? (1’+1’+1’=3’)
Acme now decides that it will abate all its emissions, rather than paying any tax on emissions. It acquires a second CCS plant on the East Coast. This plant has as cost function for carbon abatement given by: Abatement cost = 6QE + QE2, where QE is the tons of carbon abated at the east plant; the marginal cost of abatement at this plant is MC = 6 + 2QE.
(3) Given Acme’s decision to abate all the 50 tons of carbon, how much abatement Acme will choose to conduct at each plant? (1’+1’=2’)