Two approaches to pricing pollution

Abstract

Ministry of Taxation And the many others who have been willing to discuss and develop the topic of this report. The project was undertaken from October 2012 to January 2013. Sigurbjorg Saemundsdóttir Chair of the Nordic SCP Working group (HKP gruppen) Ministry for the Environment, Island Definitions Actions Polluter's actions that affect emission levels, e.g. input substitution and technology adaptation. Flexible emission fees An expert group sets a fee on emissions and adjusts the fee often to ensure proper reductions in emissions. The polluters will hedge themselves against the varying fee on a futures market. The price of futures reflects the market expectations to tomorrow's fee based on, e.g., technological and environmental trends; this information can be used by the expert group to adjust the fee. Revenue is suggested to be redistributed to consumers. Futures market A derivatives market where future expectations to the flexible emission fee can be traded. It is assumed to emerge if fee fluctuates sufficiently and enables polluters to hedge against this volatility. Mechanisms Regulator's economic-based policies to combat pollution. Polluter The entity that is the source of the targeted emission and is included under the mechanism. Regulator The public authority that governs the mechanism, sets environmental targets, monitors and enforces legislation. Tradable emission permits A mechanism where a fixed number of emission permits are auctioned or given to polluters that can choose to trade permits on the market, use permits when emitting or abate emissions. The number of permits can gradually decrease over time.