A REGULATORY INSTRUMENT COMPARISON APPLIED TO GLOBAL WARMING : CAP & TRADE, EMISSION TAXES & SUBSIDIES AND STANDARDS

Facult des sciences de ladministration Universit Laval April 19th, 2011

TABLE OF CONTENT

EXECUTIVE SUMMARY ................................................................................................ 3

INTRODUCTION .............................................................................................................. 4 STANDARDS..................................................................................................................... 4 EMISSION TAXES AND SUBSIDES .............................................................................. 6 CAP & TRADE SYSTEM.................................................................................................. 9 COMPARISON OF THE ANALYTICAL TOOLS ......................................................... 11 CONCLUSION ................................................................................................................. 13 REFERENCES ................................................................................................................. 14 APPENDIX ....................................................................................................................... 14 Appendix 1. ................................................................................................................... 15 Appendix 2. ................................................................................................................... 16 Appendix 3 .................................................................................................................... 17 Appendix 4 .................................................................................................................... 17

EXECUTIVE SUMMARY

While I was searching information to write this paper as well as questioning myself about what I do really want to write down, I knew two things; it would be strongly based on economic theory since I am graduated in economics, and that it would be about something that everyone talks about even if not understanding much what it is. Well, I decided to talk about global warming and the so to speak existing regulatory instrument to help control that phenomenon. Then, I watch Al gores movie: An inconvenient truth. Did the movie convince me that global warming is a real phenomenon and not another pretext for big firms to go green and make profits over that new trend? I got to say yes, even if its not quite clear that both arent true. Did the movie convince me of any solution to help overcome that phenomenon? No, he gave it a fair try, but to me, all he was saying was if we do that arguments based on people willingness to save the world. Would I rely on people willingness to save what stand for life support function to me? Again, my answer is no. What I really believe in is people facing the consequences of their act. Another thing I truly believe in is hitting peoples money hard enough to make them behave the way you want. That said, I decided to write about the main regulatory instruments that could help slowing down global warming: Standards, Emission taxes & subsidies and the Cap & Trade system. I am not discussing who is responsible for global warming, who is not, or who will benefit from gas emission reductions. I adopt a theoretical proactive approach since whoever is responsible, its a problem and we must find a solution. In this paper I stick to classic economic theory to explain how policies work and what are the advantages and the inconvenient of each instrument. Ill do my best to make it clear at least for people that have done basic undergraduate economic courses. Then, I will compare each instrument including as well as a quick analysis about when they should be used or not and why. Finally, I conclude by sharing my quite pessimist reflection on the subject which starts by asking: It is really still possible to stop/slowdown global warming? Then, again, my reflection on how we might act under the hypothesis that its still possible and under the hypothesis that its not as I consider that nobody really know the truth about that.

INTRODUCTION The greenhouse effect is an essential phenomenon to life on earth. So why so many people argue that the greenhouse effect is a serious problem then? The problem is the reinforcement of this effect caused by anthropogenic greenhouse gas emission because as we know, the greenhouse effect leads to global warming. Global warming means a rise of the global average surface temperature, of the global average sea level and a reduction of northern hemisphere snow cover (appx. 1).1 Of course, some argue that this is a phenomenon that happens naturally over the years. Lets make it clear, the evidences show that Earth climate is rapidly changing as a result of increase in greenhouse gases caused by human activities.2 3 The impacts of global warming are slowly but surely happening and at some point humanity will have to face them. Basically, climate change will affect three aspect of life; peoples lives, the environment and the prospect for growth and development in different part of the world.4 Climate change will affect the basic elements of life for people around the world; access to water, food, health and common use of land and environment (appx. 2). The consequence of global warming will become disproportionately more damaging with increased warming. In other words, the relation between global warming and its impacts on the environment isnt linear. Consequently, the higher temperature will increase, the higher the chances are of inducing sudden shift in weather patterns like the monsoons and the frequencies of tropical storm. Without action to fight against climate change, atmospheric concentration of greenhouse gases will continue to rise and humanity will have to face serious socials and economics consequences. Lets start with few facts to introduce the regulatory instrument used to combat climate change. Pollution is a serious threat concerning the life support function of the Earth and so, the solution must be global. Wherever the pollution comes from, the impacts are global and so, reductions in pollution must be done where its the cheapest first.5 Pollution will impact future generation and so, intergenerational equity on pollution control must be taken into account. The climate changes are characterised by uncertainty and risk as well as these impacts might be permanents and irreversible. Finally, the impacts of climate change will be more important for the poorest country even if those are the one that have least contributed to the problem, so that brings us to the developed/developing country equity problematic.6 That said, there are three main regulatory tools to combat greenhouse gases emission: standards, emission taxes and the cap & trade system. This analysis will show the pros and cons of each tool and apply this framework to the greenhouse gases problem in order to evaluate which of these instruments is the most appropriate to regulate greenhouse gas emissions. STANDARDS

1 2

IPCC Fourth Assessment Report: Climate Change 2007. STERN, Nicolas, STERN REVIEW: The Economics of Climate Change 2006. 3 PACHAURI, R.K. 2007. 4 STERN, Nicolas, STERN REVIEW: The Economics of Climate Change 2006. 5 PALMER, Karen. Tightening Environmental Standards: The Benefit-cost or the No-Cost Paradigm? 1995. 6 FIELD B.C. & N.D. Olewiler, Environmental Economics, First Canadian Edition 2005.

Historically, standards have been the most popular approach to environmental pollution control policy. Standards are a type of command and control technique. In other words, the regulator set the level of emission at a socially desirable level and the political authorities use whatever enforcement necessary means, courts, police, fines to get people conform to the standard. The spirit of this regulatory tool is that if you want people not to do something, you pass a law that makes it illegal and then use the authorities to enforce the law. There are many advantages of using standards to combat greenhouse gases emission problems.7 Simple and direct Set a clear target Appeal to peoples sense of getting environmental pollution reduced immediately Consistent with ethical sense that pollution is bad When it comes to environmental matters, there are three main types of standards: ambient, emission and technology. As I try to focus on the global warming and the greenhouse gases emission, only the emission standards as well as its implications will be developed. Emission standards are never-exceed levels applied directly by the quantities of emissions coming from pollution sources. It can be set on a wide variety of different bases. For example, emission rate (e.g. kilograms per hour), emission concentration (e.g. parts per million of biochemical in wastewater), total quantity of residuals, etc.8 Lets see how the standards work and evaluate the cost of reaching a socially efficient equilibrium using this policy instrument. First, the regulator has to figure out where to set the standards. Theoretically, setting the level of emission is simple, the socially efficient standards equates marginal damage to marginal abatement cost. In practice, standards are set by a political environment which is affected by all kinds of consideration other than the respect of the equimarginal principle such as industry priorities and social goals. However, once the standard is set, there are few key points that characterise them.9 All or nothing quality; either the standards is being met or it isnt If it isnt met, the implication is that it should be regardless of the cost of doing so If its met, its not necessary to do any better, even if the cost of doing is low Here comes the question of the uniformity of standards. Should the regulator apply the standard uniformly to all situations or should it apply it according to varied circumstances. The facts are that the problems may differ from a region to another in term of factors affecting the cost of implementing a standard policy. 10 Consequently, a
7 8

FIELD B.C. & N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. Ibid. 9 Ibid. 10 PALMER, Karen. Tightening Environmental Standards : The Benefit-cost or the No-Cost Paradigm? 1995.

standard uniformly applied across a region can have some efficiency concerns. A single uniform standard cannot be efficient simultaneously in two different environments. For example, if the regulator wants to set a car emission standard in a rural and urban area at the same time, the standard will not be tight enough for the urban area and too stringent for the rural area. A way to avoid this problem would be to set individual standards for each region. This would lead to efficiency and respect the equimarginal principle, but will drastically increase the informational needs to set the standard at a socially desirable emission level. Brief, if the marginal damage for a pollutant vary be region, a uniform standard will not be efficient while individual standards will always be.11 Another criterion to evaluate the quality of a regulatory instrument is to look at what sort of incentives effect it has on the polluter. The question would be: Is this policy gives the polluter some incentives to reduce its emission to the efficient level? In the case of standards, the command and control approach based is deficient in this regard. As said earlier, the nature of standards is that its either met or they are not, if they are met, there is no incentive to do any better than the standard even if the cost of further emission reduction is low. However the regulator could implement a stricter standard afterward. In the long run, a desirable quality of pollution control policy would be to produce strong incentives to search for means to make it less costly to reach lower level of emission. The emission standard actually gives the polluter quite low incentives for technological change. Since the polluters have to meet the standard, from the polluter perspective, investing in R&D will develop a technology that will make emission reduction cheaper (i.e. its cheaper to reach the desirable emission level). Even if quite weak, this is an incentive to search for ways to reduce the cost of pollution reduction. Finally, the standard type policy requires the enforcement of the standard itself. Enforcement of the law takes resources and since most of the enforcement is done by the government, those work under limited budget. Stricter standards involve larger enforcement cost because they require larger operating changes on the part of polluters. Consequently, these enforcement cost associated to standards might lead to weaker standard which are not socially efficient. Some would argue that this is the reason why standards approaches are favoured; they actually permit partial or incomplete compliance from the polluters.12 For the purpose of the analysis, this is it for the command and control type of policy, the next sections will discuss market-based incentive policies. EMISSION TAXES AND SUBSIDES First, lets introduce the economic-incentive approach to environmental policy. Historically, people have been able to use the waste disposal service of the environment almost for free, so there has been very little incentive for them to think about the consequences of disposing their waste in the environment. The economic incentives approach seeks to change this situation. The spirit of this approach is that polluters have to pay for their emissions, paying for their emission is an incentive to use the inputs as efficiently as possible. In comparison to the command and control type policy
11 12

FIELD B.C. & N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. Ibid.

(standards), the market-based policies allow more flexibility to the polluters as it do not prescribe that all the polluters reduce their emission by the same amount. In other words, the tax approach is to provide incentive for the polluters themselves to find the most efficient way to reduce their emissions, in comparison of having a central authority determining how it should be done.13 The emission taxes and subsidies work the same way, taxing each unit of emission or giving subsidy for each unit that the source cut back. Since the emissions taxes are more common and that taxes and subsidies basically works the same way, Ill focus on the role of emission taxes in regulating global warming.14 Emission taxes work in such a way that polluters will minimize their total cost by reducing emissions until the tax rate equals their marginal abatement cost. By doing so, the regulator can set a socially efficient tax and let the flexibility to the polluters on how they will reduce their emission.15 Theoretically, the socially efficient tax is set at the level that the marginal damage of emissions equals the marginal abatement cost of the polluters.16 In practice, its much more complicated and takes part in the political arena resulting in a tax level which is often lower than the socially desirable level. Moreover, taxes are transfer payment made by the polluters to the public, but as the main goal of this paper is to compare regulatory tools in terms of global warming control policy, it will not be discussed. As a matter of emission taxes and cost-effectiveness, the imposition of an emission tax will automatically respect the equimarginal principle because all polluters will set the tax equal to their marginal abatement cost and so the marginal abatement cost will be equalized across all sources and so, this allow a reduction of pollution to be done where its the cheapest first resulting in a cost-effective emission reduction. Consequently, polluters with higher abatement cost will reduce emission less while the polluters with lower abatement cost will achieve higher emission reduction. An important implication of the emission tax is that even if the regulator knows nothing about the marginal abatement cost of the polluters, the emission tax will still be cost-effective. However, the logic mentioned above makes the assumption that the emissions of all sources are uniformly mixed together. In the real world this is not always the case; if the pollution problem occurs in an urban area and two sources are located at different distance, their marginal damage to the urban area wont be the same and so, a single emission tax would not be fully efficient. That is the case when the damaged zone is set as a city and that would require a zoned emission tax to be fully efficient. But, as said many time, the aim of this paper is to compare regulatory instrument toward global warming and so the damaged zone is the entire world. Consequently, the topic of nonuniform emissions wont be discussed.

13 14

FIELD B.C. & N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. PEARCE, David, The Role of Carbon Taxes in Adjusting to Global Warming 1991. 15 NORDHAUS, William D, To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming 2007. 16 Ibid.

The incentives to innovate related to the emission taxes is one of the main advantages of this policy.17 Emission taxes provide strong incentives for investing in new technologies that have lower marginal abatement cost for controlling emissions. In facts, the incentives pretty much work the same way as in the case of standards but results in a bigger incentive (i.e. reduction in its pollution control related cost). Moreover, the tax system automatically pushes the polluters to reduce their emissions as their marginal abatement cost function goes downward (i.e. acquire better technology) while the standards system fail to do so. The spirit is that with the tax, polluters must pay for emission as well as abatement cost while with standards they only pay for abatement costs which result in higher cost saving from new pollution control technology.18 Taxes pose a different type of enforcement problem than standards; its extremely difficult to estimate the practical effect of the tax.19 The tax system requires accurate information on the emissions to be taxed and so, if emissions are to be taxed they must be measurable at a reasonable cost. Its not always possible as in the case of diffuse emission. However, even if taxing the emissions as close to the source as possible limit the distortion between the result and the expected result of implementing such a tax; taxing input that have a clear relationship between emissions and the use of this input is still a good compromise. Consequently, taxing point sources pollution is easier than taxing diffuse pollution source but both are still feasible and emission taxes have major advantages over the command and control policy for slowing global warming.20 Lets now have a look at a promising market-based regulatory instrument that incorporates economic incentives and works under a decentralized framework: the Cap & Trade system or transferable discharge permits (TDP).

17 18

BARANZINI, Andrea, Goldemberg Jos and Stefan Speck, A future for carbon taxes 2000. FIELD B.C. and N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. 19 NORDHAUS, William D, To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming 2007. 20 Ibid.

CAP & TRADE SYSTEM The Cap & Trade system is a relatively new type of regulatory tool which consist of creating property right (i.e. pollution permit) and then rely on the market to best achieve the regulator objectives. Each permit allows the polluter to emit one unit, usually 1 tonne, of pollution. Each polluter holds a certain number of permits at any point in time and is allowed to emit that pollution over a certain period of time. Thus, the total number of permits held by all polluters taking part in the system is the socially desirable level of pollution (i.e. the Cap part of the system). These permits are transferable from a polluter to another; polluters can buy or sell their permits at whatever the market price is for the permits (i.e. the Trade part of the system).21The transferability is the key component of such a system as we will see. Obviously, the system begins with a centralized decision on the total number of discharge permit which is the socially desirable level and so, set at the level where the marginal damage of the emissions equals the marginal abatement cost of the polluters. Then, the permits are distributed to the polluters. Basically, there is two way to set the initial permits allocation among the polluters. First, the regulator might distribute the permit freely and in accordance with the existing emissions of the polluters. Second, the regulator might create auctions in which the polluters are taking part. 22 Whatever is the way of distributing, in principle, it doesnt matter as long as the permits are distributed fairly and widely. The next question is: How such a system respects the equimarginal principle? As said earlier, the transferability is the key component of the Cap & Trade system. A polluter will reduce its emissions and sell its excess permits on the market if the price is greater than or equal to its marginal abatement cost at its chosen emission level.23 The polluter will buy permits in the reverse situation. In practice, the polluter with the lower marginal abatement cost will be the seller and polluters with higher marginal abatement cost will be the buyers. The trade will occur until marginal abatement costs across polluters are equalized. In other words, this again means that reductions in pollution is done where its the cheapest first and so, respect the equimarginal principle. A very skilled and attentive reader would say that the Cap & Trade system works like a hybrid system combining standards and emission taxes and he is right. The Cap part of the system works like standards by setting a socially desirable level of emissions from a centralized perspective while the Trade part works like taxes by achieving a uniform price at which polluters marginal abatement cost are equals. From a very theoretical point of view, the Cap & Trade system is the best of both worlds. In practice, political problem occurs and its much more complicated.24

21 22

FIELD B.C. and N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. CONVERY, Frank J, Market and Price Developments in the European Union Emissions Trading Scheme 2007. 23 FIELD B.C. and N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. 24 ELLERMAN, A. Denny et Barbara K. BUCHNER, The European Union Emission Trading Scheme: Origins, Allocation, and Early Results 2007

Concerning the TDP enforcement, the regulator has to make sure that polluters keep their emission level no greater than what they are allowed to. In order to monitor that, the regulator has to keep track of the number of permits in the possession of each polluter and the quantity of emission of each polluter. The number of permits in the possession of each polluter would be tracked by the regulator via a modern trading system so it would not be such a challenge. For the level of emission of each source, the process is the same as for the emission tax. Moreover, the Cap & Trade system bring an interesting phenomenon in regard of the emission monitoring. There is an incentive for each polluter to monitor each other; each polluter might monitor the others polluters because if some polluters emit more pollution than what they are allowed to, they are cheating by not buying enough permits which give them a competitive advantage over the others. That would also have the effect of lowering the price of emission permits on the market which is not desirable for the polluters that respect the rules. Consequently, the polluters have an incentive to denunciate their competitors making the regulator monitoring work easier.25 The incentives for R&D of the Cap & Trade system are actually the same as the incentives for the emission tax policy in a quantitative way.26 Again, the incentives for R&D are to find less costly way of controlling emissions. That time, the R&D actions that lower the abatement cost of the polluter help the polluter to reduce its emission and so, the polluter can sell the extra permits he hold. The market price of the permits has the same incentive as an emission tax. The difference is that in the emission tax policy, polluters save on the tax bill by reducing their emissions while under the TDP system; the polluters can sell their extra permits coming from their reduction of emissions.

25 26

FIELD B.C. and N.D. Olewiler, Environmental Economics, First Canadian Edition 2005. JOHNSON, Kenneth C., Refunded emission taxes: A resolution to the cap-versus-tax dilemma for greenhouse gas regulation 2006.

COMPARISON OF THE ANALYTICAL TOOLS This table compare the private/social cost, the technological incentives and the required information related to each policy. Socially desirable characteristics of a policy would be high private cost, low social cost, strong incentives and low level of required information. In the current table, when the same qualitative word is used for more than one policy, it means that they have the exact same theoretical cost/incentive/information requirement. For example, a uniform tax and auctioned TDP have the same cost relegated to the polluters.
Private/Social cost, Incentives & Information Required of Pollution control policies POLICY Uniform Standard Individual Standard Uniform tax TDP (Free) TDP (Auction) Private Cost Medium Lowest Highest Lowest Highest Social Cost Medium Lowest Lowest Lowest Lowest Incentives Weak Weak Strong Strong Strong Information required Lowest Highest Medium Low Lowest

When it comes to the choice of a policy to regulate against global warming, two of the proposed policies are dominant: the uniform tax and the auctioned TDP. They both have the highest private costs and the lowest social costs as well as they have strong technological incentives. The main difference is the level of information required to implement such policies. The uniform tax required a medium level of information which consists in the marginal damage function of the polluters, the actual level of emission and the socially desirable level of emission. There is no need for information about the marginal abatement cost function of the polluters because as we have seen before, as long as all the polluters are facing the same tax, the equimarginal principle is respected. The level of informational requirements is where the auctioned TDP become an interesting policy; to implement an auctioned TDP that respect the equimarginal principle, the regulator only need to know the socially desirable level of emission he wants to set. The marginal abatement function is revealed by the price of the permits on the market. The information about the actual level of emission would be revealed by the auctioning process by which each polluter will face incentives to reveal their true level of emission since they have to bet on the permits price.

According to that analysis as well as to the conclusions of the Kyoto treaty, the auctioned TDP seems to be the right policy to regulate global warming. But why so many economists agree that emission taxes are a better way to reduce greenhouse gasses than the Cap & Trade system?27 Economists prefer the emission taxes to the auctioned TDP because emission taxes deal more efficiently than permits with the actual uncertainty surrounding emission control.28 Theoretically, when the uncertainty toward the marginal abatement cost gives its curve a steeper shape than the marginal damage curve, the deadweight loss of emission taxes is smaller than the TDP case (Appx. 3&4). In reality, thats the case and so, its the first fundamental reason why economists advocate for the emission tax. That was the case where both policies were properly implemented. Second, the TDP system is harder to implement properly than the emission tax. If the regulator set the tax to low, too much emission will be release, which doesnt make much difference over a short period of time; and he can easily set the tax level higher. However, misjudging the number of permit in the TDP system might send the price of permits very low (bad), or very high (worst). Moreover, the fix number of permits doesnt adjust for business cycle. Third, emission taxes generate revenue which the regulator can use to do whatever he is supposed to do with it. Brief, now, we know why economists advocate for emission taxes instead of TDP from a very rational point of view. Finally, implementing TDP over an ideal area would be globally. European Union is actually trying to implement an efficient TDP for carbon emissions over the euro zone which is quite a small to mid size area relatively to the entire world. There is also the America's market for trading sulphur-dioxide which is not as controversial as the carbon emissions. So, considering that the political will is crucial, what are the chances that somehow we implement a global TDP on carbon emissions? Hint: you dont need a calculator.

27

The Economist, Doffing the cap: Tradable emissions permits are a popular, but inferior, way to tackle global warming 2007. 28 Ibid.

CONCLUSION That said, I wish that we now understand how the basics of slowing down global warming using these three policies are working. Understanding what again? Slowing down global warming, some people would even say, stopping global warming. Actually, I havent seen much paper on the feasibility to stop or slowdown global warming. Reducing, stopping or slowdown the increase of the global warming seems to be questions that people avoid. Ok, I get why politicians avoid that question. But why economists are not writing much about that? They even write on the baby shortage! Here is what I think; first, as complex as the global economy is, its all based on maximising individual satisfaction and the infinite length of humanity. Introducing the idea that its impossible to stop global warming and the related consequences strongly change the economics perspective of the phenomenon. It would means that at some point, the world as we know it today will disappear or will be heavily transformed into another system that we can hardly imagine. Writing on the baby shortage doesnt affect that kind of transformation and so, its a topic that economists are willing to write on. But, spending time thinking on how to evaluate the feasibility of stopping or reducing global warming as if we can control that kind of phenomenon implies that the foundation of the economic theory are to be redefined. If the realistic possibility of a hypothetic end of the world is seriously discussed and properly projected that would change right now the behaviour of people living into such an environment. Is that socially desirable? I dont think so; that means people taking decision knowing that their efforts will eventually (and they dont know when) be destroyed, resulting in inefficient decisions which are never socially desirable on the short and long run whatever the reality is. That might be one reason why we dont see much scientific paper on this topic, but probably not the only one. That also why I like to think that at least slowing down global warming is possible. However, working under that hypothesis still means that at some point irreversible changes will occur and we will have to rethink the way we live but, it also means that the society will continue to maximise the utility of the its resources for the time left between now and the time that it will happen, which is socially desirable. Finally, even if I dont think that any solution will really solve the problem of global warming considering the complexity of the global economy, I would advocate for the emission taxes to regulate global warming. That would show good will from the regulators by taking concrete actions instead of implementing a global or multiple regional TDP systems which are more likely to fail at the implementation phase. Anyway, if youre mixed up after reading this and asking yourself: What does he think we should do about global warming? The answer would be to implement emission taxes properly around the world or simply do nothing about it and see how it goes.

REFERENCES

BARANZINI, Andrea, Goldemberg Jos and Stefan Speck, A future for carbon taxes , Ecological Economics, Volume 32, Issue 3, March 2000, Pages 395-412 CONVERY, Frank J. And Luke Redmond, Market and Price Developments in the European Union Emissions Trading Scheme, Symposium: The European Union Emissions Trading Scheme, Rev Environ Econ Policy (2007) 1(1): 88-111 doi:10.1093/reep/rem010 ELLERMAN, A. Denny et Barbara K. BUCHNER, The European Union Emission Trading Scheme: Origins, Allocation, and Early Results . Review of Environmental Economics and Policy, volume 1, issue 1, winter 2007, pp. 6687. FIELD B.C. & N.D. Olewiler, Environmental Economics, First Canadian Edition, Updated 2nd Canadian Edition , McGraw-Hill Ryerson, 2005 JOHNSON, Kenneth C., Refunded emission taxes: A resolution to the cap-versus-tax dilemma for greenhouse gas regulation, Energy Policy 35 (2007) 31153118, 2006. NORDHAUS, William D, To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming, Rev Environ Econ Policy (2007) 1(1): 26-44 doi:10.1093/reep/rem008 PACHAURI, R.K. and Reisinger, A, Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, IPCC, Geneva, Switzerland. pp 104, 2007. PALMER, Karen & als. Tightening Environmental Standards : The Benefit-cost or the NoCost Paradigm?, The journal of Economic Perspective, Vol. 9, No. 4 (Autumn, 1995), 119-132. PEARCE, David, The Role of Carbon Taxes in Adjusting to Global Warming, The Economic Journal Vol. 101, No. 407 (Jul., 1991), pp. 938-948 (article consists of 11 pages) STERN, Nicolas, STERN REVIEW: The Economics of Climate Change , [Online], http://webarchive.nationalarchives.gov.uk/+/http://www.hmtreasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_rev iew_report.cfm 2006. The Economist, Doffing the cap: Tradable emissions permits are a popular, but inferior, way to tackle global warming, [Online], http://www.economist.com/node/9337630 June 14th, 2007. APPENDIX

Appendix 1. Changes in temperature, sea level and Northern Hemisphere snow cover

Appendix 2. Possible climate impacts

Appendix 3 TDP (Left triangle) & Tax (Right Triangle) deadweight loss

Appendix 4 TDP (Left triangle) & Tax (Right Triangle) deadweight loss