Reading assignment for Monday Feb. 8
Read the following articles, 1. Economic Doctrines and Approaches to Climate Change Policy by Atkinson and Hackler, (pgs. 1 – 9; 15 – 16; 22 – 23 and 33 – 36) and 2. Why Emissions Trading is More Effective than an Carbon Tax by the International Emissions Trading Association and comment/answer any two of the following questions by 12 noon Feb. 7.
Atkinson-etal-2010-econ-climate-change_theories
Why Emissions Trading is More Effective Than a Carbon Tax_session1
In pages 1 – 9, the authors discuss their views of how Neoclassical, Neo-Keynesian and Innovation Economics would design economic policies to address the issue of climate change. Discuss your answers to any two of the following questions:
1. According to Atkinson and Hackler, what do neoclassical economists view as the most effective policy in addressing the challenges of climate change?
2. What assumptions does neoclassical economics make about human behavior? Are these assumptions realistic? Explain
3. According to Atkinson and Hackler, what are two or three arguments made by neo-Keynesian economics? What policy does neo-Keynesian economics see as most effective in addressing the challenges of climate change? Describe
4. What are the principal problems the authors have with both neoclassical and neo-Keynesian economic proposals for resolving climate change? Clearly explain.
5. The authors discuss their theory of “Innovation Economics.” What reasons do authors cite as to why Innovation Economics offers a more effective framework for addressing the economic realities of the 21st century.
6. Describe the policy advocated by the IETA and why they believe this policy to be effective.
3. According to Atkinson and Hackler, what are two or three arguments made by neo-Keynesian economics? What policy does neo-Keynesian economics see as most effective in addressing the challenges of climate change?
The neo-Keynesian economics is based in the Keynesian economics but differentiate them self for their more liberal approaches to the modern challenges that need to be addressed in the 21st century. The neo-Keynesian maintain that “economic growth is a result of business investments, government spending because of the demand for goods and services it produces” this point proposes that the government expenditures will increase the aggregate consumer demand.
Another important point of the neo-Keynesian economics is the: “Equitable distribution of wealth and the achievement of social policy objectives” this believes propose that an equitable distribution of wealth leads to a greater consumption.
The effectiveness of the neo-Keynesian comes in the rules and regulation in the market and provide subsides for the development and development of low emission and zero emission technologies.
5. The authors discuss their theory of “Innovation Economics.” What reasons do authors cite as to why Innovation Economics offers a more effective framework for addressing the economic realities of the 21st century.
The “Innovation Economics” come into play as a result of continuous search for a new economic model that address the new elements that have been incorporated into the economy and that older model didn’t incorporate. This is the recognition of Knowledge, technology, entrepreneurship and innovation as primary factors for economic growth.
This new approach suggest that “productive and adaptive efficiency are the key to understanding how innovation creates growth”. Efficiency and organization led to greater outputs utilizing fewer inputs. Through the innovation and efficiency the economy becomes more productive and innovative. This is by reallocating the resources and creating policy that apply equal force to all the economies and activities. In this model of economy the regulation seek to encourage the innovation and efficiency of the market.
Dao Zheng Li
02/07/16
Assignment 1
(1) Neoclassical economists view as the most effective policy in addressing the challenges of climate change. The neoclassical doctrine guides the government thinking and deliberations and help the government make sense of a complex and rapidly change economy. The neoclassical economics is influenced o public policy more prevalent. Two strains of neoclassical thought exist, based mainly on political ideology, with conservative and liberal camps. Both embrace several basic principles that guide, and we believe, restrict policymakers from fully addressing climate change. The neoclassical economists believe that setting a price on carbon through a carbon tax or cap and trade is the principal and often sole policy response needed to address climate change.
(2) One of the relevant principle of neoclassical economics is that individuals act in response to incentives to rationally maximize their own self-interest, and that the collective pursuit of individual self-interest will maximize public interest. It means the individual who intends only his own gain will, in the course of maximizing his needs, be led by an invisible hand to promote the public interest. But I don’t think assumotion is realistic. The market doesn’t produce enough of the desired good on its own, such as road. Market agents do not enjoy all of the benefits or incur all of the costs of their action. Information asymmetry, where inefficiencies arise.
Question 2
Assumption
1) Economic growth is achieved by maximizing allocative efficiency.
2) Markets determined by price signals.
3) General equilibrium
4) Individuals act in response to incentives to rationally maximize their own self-interest
Neoclassical economics has grown to become the primary take on modern-day economics. Although it is now the most widely taught form of economics, this school of thought still has its detractors. Most criticism points out that neoclassical economics makes many unfounded and unrealistic assumptions that do not represent real situations. For example, the assumption that all parties will behave rationally overlooks the fact that human nature is vulnerable to other forces, which cause people to make irrational choices. Therefore, many critics believe that this approach cannot be used to describe actual economies.
Question 6
The policy advocated by IETA is a “Cap and trade” system. It is the most environmentally and economically sensible approach to controlling greenhouse gas emissions, the primary driver of global warming.
The “cap” sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere, and the “trade” creates a market for carbon allowances, helping companies innovate in order to meet, or come in under, their allocated limit. The less they emit, the less they pay, so it is in their economic incentive to pollute less.
IETA believes that the system is effective because;
1) It is specifically designed to deliver an environmental objective.
2) It is economically efficient.
3) It delivers a clear price signal.
#5) one reason the author cites as to why innovation economics offers a more effective framework is ”By combining trading with a price for emitting CO2, cap-and-trade seeks out the most efficient reduction projects within the market, delivering a lowest cost outcome.”
#6) the policy advocated by the IETA is “Compliance flexibility is delivered through the ability to “make or buy”, i.e. to implement a project and make reductions (including selling allowances), or to buy allowances from the market. A tax is unable to replicate the incentive for companies to reduce emissions that a trading system brings. Cap- and-trade delivers a profit-incentive to companies which discover stronger and more effective ways of reducing emissions.” they believe this policy to be effective because Cap-and-trade has proven its effectiveness in the US through the acid rain program, where it quickly and effectively reduced pollution levels at a far lower cost than expected.
work cited
Source: International Emissions Trading Association. “Why Emissions Trading is More Effective Than a Carbon Tax.”
Question (1)
According to Atkinson and Hackler the most effective policy of the neoclassical economists believe that setting a price on carbon through a carbon tax or cap, that is that once the price is right, the market will respond appropriately and develop the needed technologies. Another policy of the neoclassical economist is that green house gases emitters (GHG) should be charge the full cost of the emissions.
Question (3)
This key principle that shapes neo-Keynesian economic policies is that they tend to focus on increasing government spending, with the belief that such investment will lead to increased aggregate consumer demand. With their focus on demand-led economic growth, neo-Keynesians give little attention to the “supply-side” of the economy, or the factors that directly influence what producers do. In a neo-Keynesian’s view, policies, such as costly regulations, that might negatively impact the supply-side have little effect on overall economic growth. For this reason, they are more willing to support direct government regulation of economic activity. According to neo Keynesians, if companies think consumer demand is increasing, they will have an incentive to invest more; they contend that government can do little to directly spur more growth, other than ensure high levels of aggregate demand
According to Atkinson and Hackler two of the three arguments made by Neo-Keynesian doctrine which also states that economic policies are designed to maximize not efficiency, but social welfare. A market based economy is more sustainable if there is an equitable distribution of wealth. They say an equitable distribution of wealth lead to greater consumption because low and moderate income individuals have the potential to consume more which lead economic growth.
Question #5) Innovative Economics offers a more effective economic solution to 21st century problems by ensuring the government, with a clean energy innovation policy, commits to renewable energy. Clean energy commitment will create a competitive market where innovation will be rewarded. There needs to be a combined effort between both the private and public sectors. If there is no government backing, the upgrade in technology will be minuscule, while otherwise there could be much large upgrades in the new generation of technology. This could be done with grants to universities and a wide array of other institutions that could work in collaboration with each other. Collaboration through the public and private sector will also help with adopting new technology.
Question #6) The IETA believes in the cap and trade policy. This policy caps or creates an upper limit of carbon emissions allowed by a company. There are a select number of permits sold which allows for a certain amount of emissions while the extra allowances can be stored or sold to another company. Over time the cap is continually lowered to ensure that the company is meeting the limits set forth by the IETA. When companies are meeting or exceeding the goals, they can sell their extra permits for profits. For large companies they provide a certain amount of free allowances but they drop that number yearly. This policy is a lot cheaper then they had initially anticipated costing only a fraction of what was expected. This policy is more flexible than a carbon tax because it takes into account market conditions. In a bad economy the prices are lower because of decreased production and in good market conditions the prices are higher. A carbon tax is not flexible in that manner and most of the extra cost is passed onto the consumer. The emissions are monitored and reported by a third party and these companies must demonstrate they are complying with the guidelines that where set.
this article was interesting.
1). According to Atkinson and Hackler, what do neoclassical economists view as the most effective policy in addressing the challenges of climate change?
– Atkinson and Hackler, states that neoclassical economists view: is to charge emitters for the emission of green house gasses, as the most effective policy in addressing the challenges of climate change.
6). Describe the policy advocated by the IETA and why they believe this policy to be effective.
– The policy IETA is advocating is a Cape and trade system. Claiming it is more effective than a carbon tax. It is designed to deliver an enviornmental outcome, in which the cap or limit must be met. it will be great economic wise because they are delivering it at low cost. They say climate change is a global problem so they are producing a global agreement to reduce emissions. and it has been proven effective in the US via the acid rain program.
Question 3
The neo-Keynesian maintain economic growth through business investments and government spending. This is because of the demand for goods and services. They focus on increasing government spending, with the belief that such investment will lead to increased aggregate consumer demand. Based on the article the neo Keynesians, believe that if companies think consumer demand is increasing, they will have an incentive to invest more; they argue that government can do little to directly stimulate more growth, other than ensure high levels of aggregate demand.
Question 1
According to Atkinson and Hackler one of the most effective policy i is to charge emitters for the emission of green house gasses, by putting a price on carbon through a carbon tax or cap.