Rovendra Permaul ECON 2505 Assignment 1

Rovendra Permaul

Econ 2505

Assignment 1


  1. According to Atkinson and Hackler, what do neoclassical economists view as the most effective policy in addressing the challenges of climate change?

The Neoclassical economists believe that setting a price on carbon via carbon tax or cap-and-trade, in addition to using allocative efficiency is the best way in addressing the challenges of climate change. Allocative efficiency by definition is a state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.


  1. Describe the policy advocated by the IETA and why they believe this policy to be effective.

The International Emissions Trading Association (IETA) advocates a cap and trade system to reduce global emissions. This Cap-and-Trade system sets limits on emissions, allows private companies room to reduce emissions while still being economically feasible.

There are many reasons why the IETA believes this policy is effective. Cap-and-Trade emissions trading is set to produce an environmental outcome, where the cap has to be met. The carbon tax produces revenue, but doesn’t ensure a specific level of emissions. Cap-and-Trade provides a measurable amount of emission reduction on the environment. Secondly, The IETA believes Cap-and-Trade provides the most economical delivery of emissions by combining trading with a price for producing CO2. The market-based approach self stabilizes the price for emissions as well. The price of emissions will decline as an economic downturn takes effect. In addition, The Cap-and-Trade system can provide an international limit setting platform since it is the results of emissions are measurable. Lastly, The IETA believes this is a proven and tested trading system with established reductions in carbon emissions upon the environment.

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