Last week the 2019 United Nations Climate Change Conference, also known as COP25, was held in...

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Last week the 2019 United Nations Climate Change Conference, also known as COP25, was held in Madrid. The focus of the meeting was how/if the participating countries can agree to reduce the use of fossil fuels. The global use of fossil fuel as an energy source implies that our production and transportation give rise to carbon dioxide emissions and thereby potentially serious climate changes in the (near?) future. More or less all economists prefer two alternative solutions to the climate change problem; emission control by - quantity restrictions or global emission taxes. Assumptions: The marginal damage from the carbon dioxide emissions are 30 euro per ton of carbon dioxide, the demand function for emitting is in all aspects "normal" and the market can best be described as competitive. a) Show in relevant graph the competitive solution, the welfare effect from the emissions and how an emission tax can internalize the external effect from the carbon dioxide emissions. In text: Why does not the market solve the problem by itself, without regulation? Note: No need to be exact in the drawing. (4p) b) If emissions of carbon dioxide are negative - why does not the governments regulate the emission levels to zero? (1,5p) c) One problem that is discussed related to emissions of all kind is the fact that the air and the oceans can be viewed as "Public goods". How would clearly assigned property rights affect the emission problem described above? (1,5p) Last week the 2019 United Nations Climate Change Conference, also known as COP25, was held in Madrid. The focus of the meeting was how/if the participating countries can agree to reduce the use of fossil fuels. The global use of fossil fuel as an energy source implies that our production and transportation give rise to carbon dioxide emissions and thereby potentially serious climate changes in the (near?) future. More or less all economists prefer two alternative solutions to the climate change problem; emission control by - quantity restrictions or global emission taxes. Assumptions: The marginal damage from the carbon dioxide emissions are 30 euro per ton of carbon dioxide, the demand function for emitting is in all aspects "normal" and the market can best be described as competitive. a) Show in relevant graph the competitive solution, the welfare effect from the emissions and how an emission tax can internalize the external effect from the carbon dioxide emissions. In text: Why does not the market solve the problem by itself, without regulation? Note: No need to be exact in the drawing. (4p) b) If emissions of carbon dioxide are negative - why does not the governments regulate the emission levels to zero? (1,5p) c) One problem that is discussed related to emissions of all kind is the fact that the air and the oceans can be viewed as "Public goods". How would clearly assigned property rights affect the emission problem described above? (1,5p)

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b Because lower than expected demand for a commodity results in lower prices making a further reduct... View the full answer