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Read:               The lecture slides, required readings and revision questions in Module 2.

Reflect:             In Module 2 the economics of climate change and policy is introduced. In week 4, economic theory relating to externalities and public goods is introduced. It is argued that GHG emissions are an externality in the production and consumption of fossil fuels and that GHG mitigation has the characteristics of a public good. In week 5, BCA of climate change is introduced, including the potential risks and uncertainty. In week 6, the policies of mitigation and adaptation are introduced.

Respond:         Use the readings and lecture notes for assistance. (Submit the tutorial to the dropbox by the due date)

  1. Explain the concept of an externality. How can putting a price on pollution correct for an externality? (Respond in one short paragraph less than 100 words)



  1. Why is the mitigation of GHG’s characterised as a public good and what is the main implication of this? (Respond in one short paragraph less than 100 words)



  1. Role play, where you are the principal advisor of the Minister for the Environment. The Minister has an upcoming media interview on a new policy to reduce greenhouse gas emissions. The Minister requires a precise and concise answer for the following question.


What are the reasons for the government to have a policy to reduce emissions? (Use dot points to present the information to the Minister, no more than 100 words in total)








Use credible published sources (references) to support your arguments (included in word count). Responses copied directly from the lecture notes will receive no marks and as this does not demonstrate an understanding of the material.




Subject Economics Pages 3 Style APA



Externality is the cost incurred by a party that did not choose to incur it. Economists often advise governments to develop policies that internalize externalities so that costs and benefits are only incurred by companies that have opted to incur them. The theory of externality applies where a company’s production decreases the well-being of other companies that are not paid or compensated by a firm. Imposing a price on pollution ensures that only companies that benefit from the pollution are charged for overall costs connected with the pollution cleanup (Borland 2012).

Mitigation of Green House Gas (GHG) is characterized as a public good as it involves measures intended to control factors that contribute to increase in global warming. Mitigation of GHG seeks to address the issues related to climate change like drastic weather changes that leads to adverse temperatures, drought and floods. Globally, when one ton of carbon dioxide is emitted in one part of the world, it has a similar effect on climate as the same amount of carbon dioxide that is ton emitted in another part of the world. All emissions released to the atmosphere from different sources and nations determine the actual concentrations of GHG globally and the subsequent climatical changes. 

Mitigation efforts that are required to curb GHG emissions are a public good as it benefits everyone. Climate mitigation is thus classified as a public good’s problem. There is little incentive for individuals and countries to control emissions as only a limited number of countries are willing to incur the cost of GHG mitigation, but everyone benefits eventually.

Cars, trucks and other form of transport that operate primarily on gasoline which is a product of oil and electricity generated from natural gas, oil and coal are the major carbon dioxide emission sources.

The major reasons why governments have policies for carbon emission reduction are;

  • To support the development and promotion of effective global climate change that has been pegged on preindustrial levels and limited to not more than 2 degrees Celsius above the levels (Kember, Erwin, & Chandra 2013).
  • To cost and put a price tag on GHG emissions and to promote investment in clean air and create jobs.
  • Take action towards a country’s goal in long term GHG Emission reduction.
  • The smog that leads to acid rain is linked to large quantities of carbon emission in the atmosphere (Kember, Erwin, & Chandra 2013).
  • Large quantities of carbon dioxide and GHG that are released to the environment leads to global warming that is associated with drought and floods.
  • To reduce the costs associated with the cleanup of air pollution.
  • Huge emissions in the atmosphere is associated with respiratory and eye infections in human beings.
  • Air pollution may also lead to cardiopulmonary conditions and other health issues.
  • Fossil fuel is a major GHG source and a negative externality. It has been linked to deaths of fish especially in coal burning.

To conclude, GHG emissions are the major causes of global warming that has contributed immensely to the increased temperatures, floods and extreme weather conditions globally. GHG mitigation is meant to promote efforts of environmental conservation and reduction of carbon emission. Imposing a penalty on pollution ensures that only companies that benefit from pollution are charged for all the costs related to the pollution cleanup costs. Huge quantities of carbon-dioxide and green house gas released to the environment leads to global warming, drought, flooding, respiratory health conditions and other health complications. GHG mitigation provides an effective way of controlling the emission of gases.



Borland, J., 2012. Microeconomics: Case studies and applications, Cengage Learning Australia, ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/latrobe/detail.action?docID=2164809.

Kember, O., Erwin, J. & Chandra, M., 2013. GHG Mitigation in Australia: An Overview of the Current Policy, World Resources Institute, Working Paper retrieved August 16, 2017 fromhttp://www.climateinstitute.org.au/verve/_resources/TCIWRI_WorkingPaper_Australia.pdf





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