Please read the article, "The Long View on Fighting Climate Change" by Tyler Smith, as well as the accompanying paper by Gillingham and Stock found on the American Economic Association website. Additionally, please review Section 1 of Chapter 10 in the required textbook and answer the questions that follow. 1. According to the article, why is it necessary to estimate the costs of various technologies (policies) aimed at reducing carbon emissions? What are the limitations of these cost estimates? [10 marks] 2. Analyse the welfare effects of carbon emissions as follows. a. Use a supply and demand diagram to explain why carbon emissions impose a negative externality on society. In your diagram, indicate the area of deadweight loss to society. [2 marks] b. Use the same diagram to explain how a correctly calculated carbon tax can restore efficiency. What is the correct amount of the tax per ton of carbon emission? [2 marks] C. "The benefit of carbon taxes as a way to reduce pollution must be weighed against the deadweight losses that these taxes cause." Do you agree or disagree with this statement? Why or why not? [3 marks] d. "When deciding whether to impose a carbon tax on firms or consumers, the government should be careful to impose the tax on the side of the market generating the externality." Do you agree or disagree with this statement? Why or why not? [3 marks] 3. The article suggests that the most economically efficient way to reduce greenhouse gas emissions is to "put the right price on carbon emissions and let markets do the rest". Use a diagram of the market for emissions permits and answer the following questions. a. How does the market work out the right price for carbon emissions under the emissions trading scheme? [2 marks] b. How would technological improvements in production processes that reduce carbon emissions affect the equilibrium price and equilibrium quantity of permits? [2 marks] C. In what sense and how does the emissions trading scheme reduce carbon emissions in an economically efficient way? [3 marks] d. Does it matter for economic efficiency whether the government distributes or auctions the permits? If the government chooses to distribute the permits, does the initial allocation of permits among firms matter for efficiency? [3 marks] 4. Economists prefer emissions trading schemes over the plethora of policies that are being used to reduce carbon emissions, such as restrictions on fossil fuel extraction and subsidies to solar panels and electric cars. Can you explain why the emissions trading scheme generally works better than specific climate policies? Under what circumstances may such specific policies be useful even if the emissions trading scheme has been in place? [10 marks]