1-The Kyoto Protocol, drafted in December 1997, calls for each developed country to cut its

emissions of carbon dioxide by the year 2012 to approximately 8% below 1990 levels.

Some countries are concerned about the cost of making such a cut in carbon emissions. Expectations

are that the cost of pollution control will be $5-10 per ton of carbon emitted.

However, there really is a great deal of uncertainty about what the costs might be; some

say it will be easy to reduce carbon emissions, others say it will be very expensive. In one

developed country, two proposals are being considered to achieve the reduction. Proposal

A involves the issuance of permits for carbon emissions every year , with the number of

permits equaling the targeted "8% less than 1990 emissions." Each permit will be good for

emitting one ton of carbon. Proposal B is the same as Proposal A except that the government

agrees to sell an unlimited number of additional permits for $10 each. Explain how

each of these proposals works and what the price of permits might end up being under each

proposal. Discuss the pros and cons of each proposal.

2-Suppose we have one hundred different firms emitting pollution. The Ministry of the Environment

(MOE) currently regulates these firms by requiring specific pollution control

equipment to be installed by each firm. The MOE is considering issuing tradable permits

to each firm indicating how much pollution the firm may emit. Permits would be issued in

PROBLEMS Isuch a way as to result in the same amount of pollution as the technology regulations. Discuss

the implications of switching to tradable permits on the likelihood of seeing research

and development to reduce the cost of pollution control .

3-A classic way of introducing pollution regulation into an urban area is the "rollback" method.

First you determine the maximum tolerable level of a particular pollutant, JCS. Next you find

the maximum current concentration of that pollutant in the urban area, xm. Presumably xm >

xs (otherwise , there is no problem). Regulations then require all polluters in the city to reduce

emissions from their current level of em to es = em (xjxm ). Explain how this would

work to bring pollution levels down to an acceptable point. What might be the efficiency

problems with such an approach ?