Q1 Critically evaluates the concept of an “optimal” level of pollution, and discusses how economic instruments can be used to achieve this.

Can use the following to answer:

Coverage of marginal costs of pollution damage and marginal costs of pollution abatement- can use diagram 

Economic idea of optimal pollution level, which may be disputed by environmentalists

Externalities (Pigou approach)

Polluter Pays PrincipleInstruments: Explanation of various methods, with emphasis on the move from command and control to market based instruments.

Firms with differing abatement costs. 

Tradable permits, pollution taxes.

Examples can be used.

Q3. Evaluate the economic case for taking radical policy measures to avert climate change. Refer to the effectiveness of the EU emissions trading system in your answer. With reference to the recommendations of the Stern Report (2006), consider the economic case for taking radical policy action to avoid climate change. 

Can use the following:

• Greenhouse gases and global climate

• Dangers of rising temperatures

• Economic impacts

• Refer to Stern Review (2006) and the key findings

• Stern Review attempts to quantify costs of climate change, and costs of reducing emissions 

• Note- there are summaries of the Stern Review 

• The methods used in Stern Review should be discussed critically- especially the use of discounting

• Issues of uncertainty can also be highlighted

• Problems of Carbon tax and emissions trading

• Abatement costs from reducing emissions

• Higher energy bills

• Investment in new energy technologies

• Lower consumption

• Compare Damage Costs with Abatement Costs (can use diagram)