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Econ 2216 (2020): The Economics of Global Warming
Final Exam_PartII &III
1) For Part II and III, write your answers on paper; You are NOT allowed to type them
using a word processor, nor may you use programs to generate your graphs.
2) Submission: When completed, scan or photograph them and then submit under
3) This is an open book exam. You may look at your notes, books or slides but this will take
up time. Calculators are allowed.
4) This exam will be marked by the professor.
5) Honour Code: You are not allowed to communicate with anyone via phone, talking,
texting, email or any other method. The only person you may communicate with is the
professor by email. You may need to log out of Brightspace to do so. Please sign and date
your paper to indicate that you understand and agree to abide by this honour code.
Good luck! : )
6) Time Limit: All sections (3 hours + 15 -20 min to submit). Accessibility students have
their own time limits.
Part II: Analytical and Short Written Answers (1/3 total marks = 45 minutes)
1. [30 marks] If you make a math mistake, explain what you thing should have happened and
why. You will receive many of the marks for explaining the correct logic. Include correct units.
Assume two GHG emitters in the world with the following MACs. ONE is a coal-fired electricity
plant in Canada and TWO is a farm on rainforest land in the Democratic Republic of Congo.
MAC1(E1) = 20 – E1
MAC2(E2) = 8 – E2
Price units are $/tonne CO2e and quantity units are megatonnes CO2e/year. * mega = million
a)  Redraw the graph below using graph paper or regular paper but draw to scale using a ruler.
On the graphs, label:
i) MAC1 & MAC2 and ii) Business as usual (BAU) emissions for each emitter.
b)  Assume a cap and trade policy and suppose that initially each emitter is given permits
requiring them to abate 50% of their BAU emissions (i.e. half as much as they would like to emit).
Assume 1 permit allows 1 tonne CO2e emissions. Label the initial permit allocation on your graph.
c)  Assuming competitive permit markets, use algebra OR the ruler method to calculate the
equilibrium final allocation of permits. If you use algebra, for full marks, show your work
including short sentences to guide reader through your logic. If you use the ruler method, explain
your logic carefully. Be sure to discuss the equimarginal condition.
d)  Which firm buys and which firm sells permits and how many? On the graph, label final
permit allocation, final emissions, and permits exchanged.
e)  Calculate the equilibrium permit price (Peq) and label on the graph. Please show work.
f)  Calculate the following and label on graph.
i) total revenue due to permit sales
ii) total expenditure on permits
iii) total profits (surplus) for each emitter due to buying or selling permits (show work):
2. [15 marks] Please answer ONE of the following questions. About ½ a page of medium sized
i) Discuss pros and cons of cap and trade in comparison to emissions standards and taxes based on
TWO criteria. OR
ii) Discuss two ways economists estimate and monetize climate change damages. OR
iii) Discuss pros and cons of allowing international forest offsetting in cap and trade markets. OR
iv) Explain factors that affect the economist’s choice of social discount rates and how this affects
their advice on how fast to abate and carbon price trajectories.
Part III: Short Essay Question (1/3 of total marks = 45 minutes)
Page limit = 2 pages (one sided single spaced of medium sized writing). If you write double-spaced,
you can write 4 pages. If you have extra large hand-writing, you may exceed two pages. Include at
least ONE graph. Your essay should have a brief introduction, body, and brief conclusion.
Suppose that a time traveler takes you forward into the future to the year 2250. Much to your
delight, you discover that the atmosphere’s concentration of carbon dioxide has fallen to less than
300 ppm CO2e. Write a hypothetical history from the perspective of the country you studied in your
assignments to explain how this was accomplished.
Start in the year 2020 by explaining the problems your country faced due to global warming, climate
change, and ocean acidification impacts in the year 2020 and events and policies that were put into
place to solve the problem. If you are a small country, you will need to consider the actions of other
larger countries and may consider how your country was able to influence the rest of the world to
abate through global agreements, for example.
Topics you may wish to discuss in your essay include but are not limited to temperature and
concentration targets, recommended emissions reduction trajectories, representative concentration
pathways (RCPs), the Kaya Identity, externalities, policies used, and the climate change denial
problem. Be creative!
Bonus Question  IPPC scientists currently recommend taking rapid policy action to prevent
Earth’s average surface temperature from rising by 1.5 degrees C relative to the
______________________(name time period or write down rough years) level
Good luck and stay well and safe!