Carbon Trading and Business Economics

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Streamed presentation on the economics of carbon trading

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Carbon Trading and Business Economics

  1. 1. A2 MicroCarbon Trading andBusiness EconomicsTutor2u, Summer 2013
  2. 2. Evaluate the argument that participation in the EU carbontrading scheme is likely to be most effective policy for reducingcarbon emissions from the European airline industryThe EU brought in the Emissions TradingScheme for airlines on 1 January. Thisapplies to internal flights, that begin andend within the 27-country single marketAircraft using airports within the EU mustpay a tax on each tonne of CO2 emitted.The airlines have said that this will costthem £14.0bn over eight years
  3. 3. Evaluation in a ParagraphEvaluation should bebacked up with evidenceand/or knowledge to gainfull credit
  4. 4. Carbon Trading and Carbon Taxation - Business ImpactRecessioncauses price ofpermits tocollapseCarbon pricerecovers – buthigh enough tomake adifference?2012 – price stuckbelow Euro 10 pertonne – excesssupply of carbonpermits
  5. 5. Price ofcarbonpermitQuantity of permits(1 permit = 1 tonneCO2)Carbon Trading and Carbon Taxation - Business ImpactCarbon Trading MarketSupply ofPermitsEuro 20Q1Demand forPermits
  6. 6. Price ofcarbonpermitQuantity of permits(1 permit = 1 tonneCO2)Carbon Trading and Carbon Taxation - Business ImpactCarbon Trading MarketSupply ofPermitsEuro 20Q1Demand forPermitsD2Euro 30
  7. 7. Price ofcarbonpermitQuantity of permits(1 permit = 1 tonneCO2)Carbon Trading and Carbon Taxation - Business ImpactCarbon Trading MarketSupply ofPermitsEuro 20Q1Demand forPermitsD2Euro 30Q2S2Euro 35
  8. 8. Carbon Trading and Carbon Taxation - Business ImpactCost, Price The Effect of a Carbon Tax on ProducersOutput (Q)MCMRARAC
  9. 9. Carbon Trading and Carbon Taxation - Business ImpactCost, Price The Effect of a Carbon Tax on ProducersOutput (Q)MCMRARACAC2MC2
  10. 10. Carbon Trading and Carbon Taxation - Business ImpactCost, Price The Effect of a Carbon Tax on ProducersOutput (Q)MCMRARACAC2MC2Q1Q2P1P2
  11. 11. Costs, BenefitsOutput (Q)Volume of flightsExternalities in the Airline IndustryBy 2020, global international aviationCO2 emissions are projected to bearound 70% higher than in 2005even if fuel efficiency improves by2% per year.Direct emissions from aviationaccount for about 3% of the EU’stotal greenhouse emissions.Including aviation in the EUemissions trading scheme is forecastto save around 176 million tonnes ofCO2 emissions over the period up to2015.MPCMPB
  12. 12. Costs, BenefitsOutput (Q)Volume of flightsExternalities in the Airline IndustryMPCMPBMSCQpUsing an appropriate diagramexplain how the EU airline industryleads to a divergence betweenprivate and social costs and benefitsExternalities are third partyeffects arising from productionand consumption of goods andservices for which no appropriatecompensation is paid
  13. 13. Costs, BenefitsOutput (Q)Volume of flightsExternalities in the Airline IndustryMPCMPBMSCExternal CostQpUsing an appropriate diagramexplain how the EU airline industryleads to a divergence betweenprivate and social costs and benefitsExternalities are third partyeffects arising from productionand consumption of goods andservices for which no appropriatecompensation is paid
  14. 14. Costs, BenefitsOutput (Q)Volume of flightsExternalities in the Airline IndustryMPCMPBMSCExternal CostQpQsSocialOptimumOutputFree market equilibrium (at Qp) isdifferent from the social optimum(we are not showing possiblepositive externalities fromconsumption here)Market failure when the market pricefails to take into account the externalcosts
  15. 15. Evaluate the argument that participation in the EU carbon trading scheme islikely to be most effective policy for reducing carbon emissions from theEuropean airline industryExplain &AnalyseCarbonTradingConditionsfor carbontrading to beeffectiveCriticalevaluation –problemswith tradingViablealternatives– moreeffective?KnowledgeAnalysisAnalysisEvaluationEvaluation
  16. 16. Evaluate the argument that participation in the EU carbon trading scheme islikely to be most effective policy for reducing carbon emissions from theEuropean airline industryTrading puts a price on carbonIncentivises airlines to reduce their emissionsStimulates investment in new aircraftA boost to innovation / dynamic efficiencyRevenues can be ring-fenced for green projectsArgumentsfor a carbontradingscheme
  17. 17. Evaluate the argument that participation in the EU carbon trading scheme islikely to be most effective policy for reducing carbon emissions from theEuropean airline industryCollapse of EU carbon price makes it ineffectiveImposes extra costs on EU airlines – already strugglingGovernment failure – e.g. fraud from allocating permitsMight cost jobs in an important industry for the EUVariable / uncertain price of carbon limits incentive to investCriticisms ofcarbontrading
  18. 18. “In the long run…..”Strong evaluation mightcompare short run v longrun effects from a policyintervention
  19. 19. Evaluate the argument that participation in the EU carbon trading scheme islikely to be most effective policy for reducing carbon emissions from theEuropean airline industryCarbon or fuel taxation gives more certaintyTougher industry regulationsTax incentives for innovationMarket forces work in long runGlobal approach needed to cut emissionsAlternativesand a LongRunPerspective
  20. 20. The KnowledgeStudents with currentknowledge invariablyoutscore those who don’t –true for micro and macro!
  21. 21. Get help from fellowstudents, teachers andtutor2u on Twitter:@tutor2u_econ

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