Question

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.

A4-3. A properly constructed tax on greenhouse gas emissions results in an efficient amount of emissions abatement and an efficient allocation of abatement across emission sources.​

Answer 1

True. A properly contructed tax on greenhouse gas emissions would mean that there are certian well defined property rights that govern the greenhouse gasses emissions in the society. Any increase in greenhouse gas emissions beyond the threshold would mean that the producer of greenhouse gas will have to bare a fine, which might lead to reduction of his loses. Thus properly constructed tax on greenhouse gas emissions would lead to efficient amount of emissions abatement and an efficient allocation of abatement across emission sources.