Environmental Policies & Incentives

• Policies provide financial or regulatory incentives for environmental protection.
• These policies serve as an alternative to command-and-control regulations.
• Examples of such policies include: carbon pricing, subsidies, tax incentives, and tradable permits.
• Effectiveness varies by policy type.

Abatement Subsidies Cap and Trade

• Abatement is the reduction of pollution or harmful emissions.

Investment in Technologies

• Companies or individuals can invest in technologies/practices that reduce their environmental impact.

Subsidies

• Governments provide financial incentives to encourage businesses/individuals to adopt eco-friendly technologies or reduce emissions.
• Incentives may include grants, tax breaks, or direct payments.

Cap and Trade

• Cap and Trade is a market-based system where the government sets a limit (cap) on total emissions.
• Companies can receive or buy emission permits.
• Companies that reduce pollution below their allowed limit can sell their extra allowances.

Abatement Subsidies Cap and Trade

• Tools are used to internalize negative externalities like pollution and promote efficient resource allocation.
• An emission charge acts as a fine for companies, making pollution more expensive.
• A subsidy for emission reductions works like a reward.

How Abatement Subsidies Cap and Trade Works

• A company earns money from the subsidy if it cuts back on pollution.
• For example, a company emits 10 tons of pollution per month.
• The government offers $120 for every ton the company reduces.
• A company misses out on money if it continues polluting.

Conclusion of Cap and Trade

• Choosing to pollute creates an opportunity cost, which means losing potential earnings.
• Companies want to achieve the pollution level where total profit (subsidies minus costs) is highest.
• The best option is reducing emissions to 4 tons per month, the level chosen when paying a ₱2000 tax instead.
• Charging for pollution or rewarding reductions cause companies to reduce emissions.

Offset and Emission Rate Tradings

• Offset and emission rate trading is important in environmental economics, especially for mitigating climate change.
• Mechanisms reduce greenhouse gas emissions and promote sustainable practices.

Offset

• "Offset" means balancing or compensating for something by introducing a counteracting factor or action.

Types of Offset

• Direct Offsets are directly related to the goods/services being exported.
• Indirect Offsets aren't directly related to the exported goods/services.
• Carbon offsetting balances or neutralizes greenhouse gases by funding projects that reduce/remove emissions from the atmosphere.

Carbon Credits

• Carbon credits allow the owner to emit a certain amount of carbon dioxide (CO2) or greenhouse gases (GHGs).
• One credit allows the emission of one ton of CO2 or its equivalent in other GHGs.
• Carbon credits are also known as carbon allowances.

Cap and Trade

• Cap and trade is a regulatory program designed to control the level of certain emissions.

How it Works

• The government sets a limit on the total emissions allowed from a specific sector/activity.
• Companies receive permits (allowances/credits) to emit a certain amount of pollution.
• Companies can trade permits, which means those emitting less can sell excess permits to those who need them.
• This incentivizes companies to reduce emissions, either reduce emissions/sell excess permits or pay for the right to emit more.

Benefits

• Cap-and-trade is more cost-effective than command-and-control regulations.
• The trading system allows companies to find the most efficient ways to reduce emissions (flexibility).
• The cap ensures a predictable total amount of emissions reductions (certainty).

Global Environmental Issues

• Environmental federalism distributes environmental policymaking/regulatory authority across different government levels.
• This is seen in federal systems where power is divided between national (central) and regional governments.

Roles of States

• States create pollution reduction rules, protecting natural resources by controlling harmful activities, such as limiting factory emissions and banning plastic bags.
• States promote clean energy by encouraging the use of renewable energy sources like solar, wind, and hydropower.