1. James Stodder, (Ph.D., Economics, Yale 1990) Lally School of Management & Technology Rensselaer Polytechnic Institute at Hartford Hartford, Connecticut, USA Stodder, Presentation on Pollution Permits, Sept. 14, 2011

2. http://www.ngdc.noaa.gov/paleo/icecore/antarctica/vostok/vostok_data.html Stodder, Pollution Permits, Sept. 14, 20112

3. CO2 and Industrialization http://www.globalwarmingart.com/wiki/Image:Carbon_Dioxide_400kyr.png 3Stodder, Pollution Permits, Sept. 14, 2011

4. Surface Temp & Hurricane Intensity “Increasing destructiveness of tropical cyclones over the past 30 years”, Nature, 8/4/05, ftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdf Hurricane Intensity - - - Sept. Surface Temp __ 4Stodder, Pollution Permits, Sept. 14, 2011

5. 5 Majority Believes in Global Warming Source: Yale University Project on Climate Change Communication

6. Good Old Supply & Demand! Stodder, Pollution Permits, Sept. 14, 20116

7. Planning is Perfect – if No Uncertainty! Stodder, Pollution Permits, Sept. 14, 20117

8. But if Costs are Uncertain … Stodder, Pollution Permits, Sept. 14, 20118

9. … Outcome with Quantity Controls Stodder, Pollution Permits, Sept. 14, 20119

10. Losses with Quantity Controls Stodder, Pollution Permits, Sept. 14, 201110

11. Losses with Quantity Controls Stodder, Pollution Permits, Sept. 14, 201111

12. With Cost Controls, further from Equ. Stodder, Pollution Permits, Sept. 14, 201112

13. Stodder, Pollution Permits, Sept. 14, 201113 Greater Losses with Cost Controls

14. Steep Decline in Benefits => Quantity Controls Steep Decline in Benefits => Quantity Controls 14 Weitzman (1973)

15. What if more Gradual Define in Benefits? Stodder, Pollution Permits, Sept. 14, 201115

16. Stodder, Pollution Permits, Sept. 14, 201116 Quantity or Cost Controls?

17. Stodder, Pollution Permits, Sept. 14, 201117 Cost Controls Closer to Equilibrium

18. Stodder, Pollution Permits, Sept. 14, 201118 Quantity Controls Further from Equilibrium

19. 19 Costs more steeply sloped than Benefits => Cost Controls Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdfwww.rff.org/documents/RFF-DP-98-02.pdf

20. Stodder, Pollution Permits, Sept. 14, 201120 Best Method is an Empirical Question: If Social Benefits are Less Price Sensitive (More Steeply Sloped) than Costs => Use Quantity Controls (Pollution Permits).

21. 21 Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdfwww.rff.org/documents/RFF-DP-98-02.pdf Benefits more steeply sloped than Costs => Quantity Controls

22. Stodder, Pollution Permits, Sept. 14, 201122 If Social Benefits are More Price Sensitive (Less Steeply Sloped) than Costs => Use Cost Controls Use Cost Controls (Taxes / Subsidies).

23. 23 Costs more steeply sloped than Benefits => Cost Controls Prices vs. Quantities Revisited: www.rff.org/documents/RFF-DP-98-02.pdfwww.rff.org/documents/RFF-DP-98-02.pdf

24. Stodder, Pollution Permits, Sept. 14, 201124 Volatility of S0 2 Prices, US: 1995-2006 William Nordhaus (Copenhagen, 2009)

25. Stodder, Pollution Permits, Sept. 14, 201125 Basic Business Argument: What is more important for your Business? Basic Business Argument: What is more important for your Business? Knowing the future price of energy that your business must pay? Knowing the future price of energy that your business must pay? or … or … Knowing the future quantity of energy that the country as a whole must use? Knowing the future quantity of energy that the country as a whole must use?

26. Stodder, Pollution Permits, Sept. 14, 201126 Additional Arguments: Carbon taxes will make the cost of carbon- based energy higher, but also more stable. Carbon taxes will make the cost of carbon- based energy higher, but also more stable. Taxes on energy are already in place. Pollution Permits would require new levels of bureaucracy. Taxes on energy are already in place. Pollution Permits would require new levels of bureaucracy. Much easier to tax oil at the refinery than check pollution permits at the tail pipe or smokestack. Much easier to tax oil at the refinery than check pollution permits at the tail pipe or smokestack. Carbon tax applies to all users, while permits are monitored for just the biggest polluters. Carbon tax applies to all users, while permits are monitored for just the biggest polluters.

27. What about the Recession? Stodder, Pollution Permits, Sept. 14, 201127 Martin Wolf, Financial Times, Sep. 6, 2011

28. Bond Market Worried About Growth 28 http://research.stlouisfed.org/fred2/graph/?id=FII10,