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Abstract
The typical proposition of economists to solve the greenhouse gas problem (GHG) is that governments should put a price on these emissions. As human behavior can be influenced by prices, high prices on GHG emissions would imply lowering these emissions. One reaction would be to substitute the burning fossil fuels by non-fossil fuels such as wind, photovoltaics, geothermal and hydropower, eventually nuclear. The second would be innovations towards satisfying human needs by less energy. The third would be to avoid the GHG emissions by carbon capture and storage technologies. However, putting a price on GHG emissions requires political actions. Politicians have basically two alternatives. One would be to introduce a fiscal tax on GHG emissions, whereby the tax rate represents the price of the emission. The other is to implement a cap-and-trade system for GHG emissions, which requires that companies have to cover each emission unit by an emission right issued by the government. When these emission rights are traded, the market price of these rights represents the emission price. Common to both systems are sanctions on companies that do not comply. Today both systems have been implemented somewhere in the world to control GHG emissions so that their comparable benefits and disadvantages can be studied in reality.
Highlights
1. – Introduction The greenhouse gas problem (GHG) effect is the consequence of certain gases in the atmosphere, in particular water vapor, carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O)
The actual debate on the GHG problem focuses on the concentration of CO2 in the atmosphere and on limiting its increase
The GHG effect of other emissions is expressed in CO2 equivalents: The CO2 equivalent of methane (CH4) is 25 and of nitrous oxide (N2O) 298 if a time horizon of 100 years is assumed(1)
Summary
Introduction TheGHG effect is the consequence of certain gases in the atmosphere, in particular water vapor, carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). To explain the economics of an emission tax system, we start with the assumption that the annual CO2 abatement cost curve of the country is known
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