Title: Figure 8.1 A comparison of emissions taxes and marketable emissions permits when abatement costs are
1Taxes
Permits
t
P
MC
MC
M
L( M)
M
M
PH
t
P
MCH
MCH
PL
MC
MC
MCL
MCL
M
M
M
MH
ML
L( M)
Figure 8.1 A comparison of emissions taxes and
marketable emissions permits when abatement costs
are uncertain.
2Figure 8.2 Target setting under perfect
information.
MD
t
MC
M
Emissions, M
3Figure 8.3 Uncertainty about abatement costs
costs overestimated.
MD
Loss when licenses used
tH
t
MC (assumed)
Loss when taxes used
MC (true)
M
LH
Mt
Emissions, M
4Figure 8.4 Uncertainty about abatement costs
costs underestimated.
MD
t
tL
MC (true)
MC (assumed)
M
LL
Mt
Emissions, M
5Figure 8.5 Uncertainty about abatement costs
costs overestimated.
MD
MD
tH
t
MC (assumed)
MC (true)
M
LH
Mt
Emissions, M
6Figure 8.6 Uncertainty about abatement costs
costs underestimated.
MD
MD
t
tL
MC (true)
MC (assumed)
M
LL
Mt
Emissions, M
7Figure 8.7 Uncertainty about damage costs
damages underestimated.
MD (true)
MD (estimated)
t
MC (true)
M
L
Emissions, M
8Figure 8.8 Consequences of a threshold in the
damages function.
Total damages
D
M?
Emissions, M
9Figure 8.8 (Panel (b))
Marginal damages marginal (abatement) costs
MD
t2
MC1
t1
MC2
M?
M22
M1
M2
Emissions, M
10Figure 8.9(a) Incentive effects with permit
systems.
MD
?P1
?
MC (reported)
?P2
MC (true)
M L
MP LP
Emissions, M
11Figure 8.9(b) Incentive effects with an
emissions tax.
MD
?
?T
MC (true)
MC (reported)
MT1
MT2
M
Emissions, M
12Figure 8.10(a) An incentive compatible
instrument and under-reporting costs.
MD
P
MC (true)
MC (reported)
M L
Emissions, M
13Figure 8.10(b) An incentive compatible
instrument and over-reporting costs.
MD
MC (reported)
P
MC (true)
M
Emissions, M
14Figure 8.11 The net benefits of regulation.
Marginal real resource cost of abatement
induced indirect costs transactions costs
Marginal real resource cost of abatement
induced indirect costs
D
Marginal real resource cost of abatement
C
Gross marginal benefits of abatement
B
A
ZB
ZA
ZC
Emissions abatement