If you are teaching environmental economics and don't receive the Microeconomics Weekly Review from the WSJ, why the heck not? It's free and you can always find the WSJ articles somewhere on campus for free. Are you a total loser? Or are you just not trying hard enough? Don't make me angry.
Economist Strikes Gold In Climate-Change Fight
by Leila Abboud
Mar 13, 2008
Page: A1TOPICS: Environmental Issues, Environmental Regulation, Supply and Demand
SUMMARY: The planet is getting warmer. Economist Richard Sandor is getting wealthier. His company, Climate Exchange, has carved out a key role in Europe's booming trade in "carbon permits." Now, as carbon trading draws intense interest from rivals, he gears up for the next big battlefield: The U.S.
CLASSROOM APPLICATION: The article offers a nice explanation of the carbon "cap and trade" mechanism. "Carbon permits are traded much like physical commodities -- gold, oil or pork bellies. Each government-issued permit grants its holder permission to emit a ton of carbon dioxide into the air. Carbon Exchange makes money by taking a commission on each trade and by charging membership fees. So-called 'cap and trade' programs like Europe's are intended to give polluters a financial incentive to clean up their act. Governments set emissions caps, and companies that beat them can trade their pollution credits to other firms willing to pay to pollute. Over time, the caps are lowered, making it costlier to choose to keep polluting."
QUESTIONS:
1. (Introductory) What is the market for carbon permits?2. (Introductory) Explain the economic efficiency of grants to firms, who are permitted by regulation to maximum amounts of carbon emissions, the right to trade these permits.
3. (Advanced) The article states, "Trading on an exchange is often more efficient than trying to find a buyer or seller alone." Explain the economic efficiency of a "centralized" market. The article also states," But for bigger trades, many companies and banks still prefer to do private deals so they don't tip off competitors or cause drastic swings in the still-nascent market." What is the relationship between market power, information and the optimality of this strategy?
4. (Advanced) Evaluate the following proposition. "Some economists argue for taxing polluters instead, including Nobel prize-winning economist Joseph Stiglitz, and former chairman of President Bush's Council of Economic Advisers, Gregory Mankiw. A carbon tax, they say, would be more transparent and less vulnerable to lobbying by industries trying to win higher caps for themselves."
Reviewed By: James Dearden, Lehigh University
Will someone please explain to me why I've never won a teaching award?
