A pollution policy game. Summary of the situation. You are also a firm 2/29/2016

Transcription

1 A pollution policy game 4 Summary of the situation There are 10firms in an area. Historically, they have not been regulated and have been emitting pollution. The history of emissions is presented on your history sheets. The EPA has decided that it needs to reduce monthly emissions to 1000 pounds. 5 You are also a firm You have two choices that must be made each round: what pollution technology to use, and how much labor to use. You would like to maximize profits, but are now facing environmental regulations 6 1

2 You are also a firm Your engineers & accountants have prepared two pieces of information for you. A table that presents your options 30 Pollution Control Level 20% 40% 60% 0% 80% Profit: 535 Profit: 516 Profit: 497 Profit: 478 Profit: 458 Pollution: 56 Pollution: 42 Pollution: 30 Pollution: 19 Pollution: 9 40 Profit: 703 Pollution: 89 Profit: 670 Pollution: 66 Profit: 635 Pollution: 46 Profit: 600 Pollution: 29 Profit: 565 Pollution: Profit: 849 Profit: 794 Pollution: 123 Pollution: 90 Profit: 740 Pollution: 62 Profit: 685 Pollution: 37 Profit: 631 Pollution: Profit: 971 Profit: 894 Profit: 815 Pollution: 157 Pollution: 113 Pollution: 76 Profit: 736 Pollution: 44 Profit: 657 Pollution: 19 Labor Profit: 1070 Profit: 963 Profit: 856 Pollution: 190 Pollution: 133 Pollution: 86 Profit: 1145 Profit: 1007 Profit: 867 Pollution: 219 Pollution: 149 Pollution: 93 Profit: 749 Pollution: 49 Profit: 726 Pollution: 51 Profit: 642 Pollution: 21 Profit: 596 Pollution: 21 7 And a figure that presents your profits & pollution graphically. 8 Practice Round Manager Identify the labor and pollution control that you would use in the absence of environmental regulations. What pollution technology should you use? 9 2

3 Analysis of Practice Round Suppose you had to reduce your pollution a little bit. 10 Analysis of Practice Round Suppose you had to reduce your pollution a little bit. By how much would your profits fall? ( ) By how much would your pollution fall? ( Poll) What is the approximate marginal cost to you? ( / Poll) 11 C&C:Regulator You are a regulator using a command & control approach to regulation, based on the historical record, what pollution control technology are you going to require (0% - 80%)? How much should firms be fined if they do not comply? Each team makes a decision and then we vote as a class what level to choose. 12 3

4 C&C: Manager Now you are your firm. Your profits and pollution are presented on your sheet. You must make 2 choices: What pollution technology should you use? You will be fined if you do not comply. When you have made a decision, send a representative to report your decisions. 13 Let s talk about Command & Control regulations from the perspective of the policy maker? from the perspective of the firms? from the perspective of the citizens? 14 There are options that should be ignored? Would it ever make sense for a firm to use one of these options, why or why not? 15 4

5 Identify the optimal set of options Team #: Pollution Max Profit Limit under limit 300 Actual Pollution Pollution Control Level Labor Marginal Cost Did any firms use a dominated choice under C&C? 17 Pollution Limit Regulator You are a regulator using a simple limit on pollutions. Based on the historical record, what limit should be placed on the firms emissions in order to reach an aggregate monthly load of 1000 pounds? By how much ($/pound) should firms be fined if they go over the limit? Each team makes a decision and then we vote as a class what level to choose. Instructor: Implement this using the Cap & Trade worksheet without allowing any trading 18 5

6 Pollution Limit Manager Now you are your firm facing the pollution limit policy as decided by the class? You must make 2 choices. What pollution technology to use? What is your marginal abatement cost at this limit? 19 Practice with a tax policy Suppose that you faced a tax of $2 per unit of pollution. What would your firm do? How would you make your choice? Make a team decision on the pollution-control technology and the labor you want to use. Report your decisions 20 Pollution Tax Regulator You are a regulator using a pollution tax approach to regulation, based on the historical record, what tax per pound of emissions do you think you should set to achieve a monthly load of 1000 pounds. Each team makes a decision and then we vote as a class what level to choose. 21 6

7 Pollution Tax Manager Now you are your firm facing the tax rate on your emissions. You must make 2 choices. What pollution technology to use? 22 Let s talk about pollution taxes from the perspective of the policy maker? from the perspective of the firms? from the perspective of the citizens? Do we often see pollution taxes? Why or why not? 23 Subsidy Policy Regulator You are a regulator using a pollution subsidy approach to regulation. Firms will be given a subsidy per pound by which they reduce their pollution below 300pounds. What subsidy per pound of emissions do you think you should use to achieve a monthly load of 1000pounds. Each team makes a decision and then we vote as a class what level to choose. 24 7

8 Subsidy Policy Manager Now you are your firm facing the subsidy for your emission reductions. You must make 2 choices. What pollution technology to use? 25 Let s talk about pollution subsidies from the perspective of the policy maker? from the perspective of the firms? from the perspective of the citizens? Do we often see pollution reduction subsidies? Why or why not? 26 Cap & Trade Manager You are a regulator using a cap and trade approach to regulation. Firms will have a cap on their emissions, but they can trade rights. Each firm will have initial rights, allowing 100 pounds of emissions What fine should a firm pay for each pound by which it exceeds its cap? We will vote as a class on the fine per pound. 27 8

9 Step 8: Prepare for Trading Using your Marginal Abatement Cost table WTP On average, how much do your profits go up per pound of additional pollution if you can increase your pollution above 100 lbs? That would be the starting point for your WTP. WTA (willingness to accept) On average, how much do your profits go down per pound of pollution if you decrease your pollution below 100 lbs? That would be the starting point for your WTA. 28 Step 8: Prepare for Trading Based on your WTP and WTA numbers, come up with two initial bids: Our team would be willing to pay $ each to buy credits so we could pollute more. Our team would be willing to accept $ each for credits, requiring us to pollute less. Submit your bids to the instructor. 29 Trading All trading should take place in the center aisle. Two negotiators per team go to the aisle to make deals. Hold your team number high. After a buyer and seller agree on a trade, both must go to the front of the room to record the trade. The time limit for trading is 10 minutes. 30 9

10 Step 10: Close the market Your trades have been recorded. You must make 2 more choices. What pollution technology to use? 31 Let s talk about cap and trade from the perspective of the policy maker? from the perspective of the firms? from the perspective of the citizens? Do we often see cap and trade approaches? Why or why not? 32 Overall Which pollution policy approach is most attractive and why? From the perspective of the regulator? From the perspective of the firm? From the perspective of the society as a whole? 33 10