In this lecture the professor discusses how to model emissions pricing, which can be implemented by for example a tax or a cap and trade system. When it comes to abating firms face the choice of either reducing emissions intensity or producing less.
Does for example the optimal emissions price equal the marginal damage? How are firms affected? And what incentives does firms have with an abatement scheme as Grandfathering?
There are also schemes of Output-Based Rebating (OBR), which can be used in combination with emissions pricing. This allocates some or all of the revenues from the emissions pricing back to the affected firms in proportion to their output. There are different ways of performing the OBR’s, and the professor discusses some of the most commonly used ones, giving examples of successful cases, and the impact OBR’s have on firms.
How does OBR’s compare to simple Grandfathering schemes? And does OBR compensate firms? The Professor does mathematical comparisons and also compares different OBR’s.