Reducing External Costs: Policy Instruments and Emission Abatement

This lecture delves into the concept of external costs in production, explaining how market equilibrium may not lead to optimal outcomes due to the neglect of these costs. The instructor introduces various policy instruments to address external costs, emphasizing the need to reduce production and consumption to mitigate environmental impacts. The discussion extends to the controversy surrounding climate policy, exploring the possibility of reducing external costs through technical progress. The lecture also covers the concept of green growth, highlighting the potential to maintain economic growth while reducing environmental impact. Different strategies, such as emission abatement measures and emission permits, are discussed as effective tools to incentivize emission reduction and achieve environmental targets.