Edexcel economics unit 1 and 2 retakes

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Definition or understanding of tradable pollutionpermits (a limit placed on firms carbon emissionsthrough issue of permits / permits can bepurchased and sold / fines if firms exceed limitwithout buying permits) (1+1 marks).

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Data reference: e.g. Australian governmentintends to reduce carbon emissions by 5% by 2020/ Australia accounts for 1.5% of greenhouse gasemissions (1 mark) Benefits of tradable pollution permits to reducepollution (2+2+2+2 or 3+3+2 marks): NB: Do not award for discussion of benefits inreducing air pollution and impact of globalwarming. The focus has to be on the merits anddemerits of the system of tradable permits.

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A market created for buying and selling carbonpermits / use of price mechanism to internaliseexternal costs / the best way to reduce carbonemissions.

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This may be shown through a relevant externalitydiagram / where external costs are internalisedthrough trade in carbon permits / somedevelopment e.g. reduce welfare loss or identifyrevenue from sale of carbon permit (1+1+1marks).

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Use of demand and supply diagram / depicting adecrease in supply of permits and its subsequentincrease in price of permits (1+1 marks)

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Australia is one of the world’s largest carbonpolluters per head of population / so the scheme isjustified to help reduce global emissions.

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The Australian emissions trading scheme is similarto the EU and so could help create a global scheme/ especially as China and South Korea showinterest in setting up one.

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Government can raise funds by selling somepollution permits / revenue can be used to reduceeffects of pollution / subsidise cleaner technology /compensate victims.

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Firms have an incentive to invest in cleantechnology / then sell excess permits to other firms/ or bank surplus permits for future years.

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The heavy polluting firms are disadvantaged byexperiencing higher production costs from buyingextra permits/ whereas the cleaner firms are at anadvantage with relatively lower production costsfrom selling surplus permits.

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Data bias could exist as Anglo AmericanCorporation may be exaggerating theunemployment effects of an emissions tradingscheme. Evaluation = 6 marks
Consideration of the limitations of tradablepollution permits for reducing pollution or theirdisadvantages (2+2+2 or 3+3 marks):

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Extract 2 suggests huge increase in costs formining industry of A$25 billion by 2020 / manyjobs directly and indirectly at risk / development ofthis point e.g. related industries such as miningtools industry or manufacturing industry.

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Extract 2 indicates that Australia only accounts for1.5 per cent of global carbon emissions / not muchpoint setting up the scheme compared to the costfor mining companies.

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Extract 2 suggests a decrease in mininginvestment projects / development of this pointe.g. reduce Australia’s ability to meet futureenergy needs.

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Little incentive for firms to reduce pollution since /94.5 per cent of permits issued for free and sogovernment failure / heavy polluters can purchasesurplus permits from other firms rather than investin expensive clean technology.

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Disputes arise over allocation of permits / possiblebarriers to entry.

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A cost to the government of monitoring andenforcing carbon pollution emissions rules.

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The valuation of pollution permits may be too riskyto leave to the market.

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Problem that most countries in the world are notpart of an emissions trading scheme especially US(apart from California).

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Other schemes might be more effective in reducingcarbon emissions e.g. carbon offsetting orrenewable energy certificates.