Question

For any given demand curve for the right to pollute, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits. Suppose there is a sharp improvement in the technology for controlling pollution.
Illustrate the effect of this development on the demand for pollution rights.

Answer 1

Answer:

Usually, the government can achieve the same outcome either by setting a price with a corrective tax or by setting a quantity with pollution permits for any given demand curve for the right to pollute. But If there is a sharp improvement in the technology for controlling pollution for any given demand curve for the right to pollute, the effect of this development is a change in the demand for tradeable pollution rights as illustrated below.

Explanation:

Trading pollution rights has opened up a thriving market system for its demand by firms that emit carbon di oxide and other forms of air/water pollution to the environment.

This is where  the exchange of permits or "rights" to release pollution residuals into the environment takes place.

These pollution permits is be bought and sold in by industries and government respectively .

Prices would vary according to the forces of supply and demand The total number of permits would be based on the amount of permissible pollution residuals that can be safely released into the environment during a given period of time. These permits could be given away or auction off to potential polluters, in most cases the highest bidder.

Suppose there is a sharp improvement n Technology for controlling pollution such as

1. industrial process machines that eliminates air pollution by collecting and recycling the harmful substance that should have escaped into the atmosphere for use or even for sale when the need for it has been discovered thereby reducing or controlling pollution.
2. a mechanism that protects the environment by conserving and protecting natural resources while strengthening economic growth through more efficient production in industry and less need for households, businesses and communities to handle waste.

The demand for pollution rights will drastically reduce.

Answer 2

Answer:

We will try to study this as the market for pollution rights.

The government supplies pollution rights and industries demand pollution rights. A sharp improvement in pollution controlling technology will cause a similar effect to a technological improvement that increases productivity in any other type of industry.

This technological improvement shifts the supply curve to the right, increasing the quantity supplied at every price level. The increase in the quantity supplied will result in a lower equilibrium price (lower tax) and an increase in the quantity demanded (more pollution rights demanded).