Airlines+And+Emissions+Permits+by+Jenny

TITLE OF EXTRACT: Airlines And Emissions Permits: Green Taxes – A Nicer Little Earner For Some

SOURCE: @http://www.economist.com/blogs/gulliver/2012/02/airlines-and-emissions-permits

DATE EXTRACT WAS WRITTEN: Feb. 6, 2012

DATE CURRENT EVENT WAS WRITTEN: Mar. 17, 2012

EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE: The article talks about the use of taxes on airlines to cover the carbon-dioxide emissions of all the flights into and out of European airports. This relates to the idea of externalities – in this case, a negative externality, where the effect of production or consumption of the good or service has a negative effect upon a third party. In this article, it refers to the issue where there is a negative externality of consumption. That means when pilots are flying planes (since this article talks about airlines), there is a negative effect on society – pollution – from carbon-dioxide emissions. The excess of carbon-dioxide emissions from flying planes harm society by causing things like global warming and air pollution. Therefore, the airlines are not consuming at the socially efficient level. One method European airlines have set to cover these negative externalities of production is placing taxes. The article talks about the idea of a Cap and Trade Systems where the government issues a number of tradable emission permits, leaving the rest to be purchased by the firms from the governments. The plan is to issue 85% of the carbon permits that are needed, and letting the airlines purchase the remaining 15%.

VOCABULARY TERMS AND DEFINITIONS:
 * Externalities – the production or consumption of a good or service has an affect upon a third party
 * Negative Externality of Consumption – things that adversely affect third parties when they are consumed
 * Indirect Tax – tax impose on expenditure
 * Specific Tax – fixed amount of tax that is imposed upon a product
 * Percentage Tax – tax is a percentage of the selling price
 * Cap and Trade Systems – use of government issued emission permits that can be bought, sold, or traded by firms

DIAGRAMS:

EVALUATION: The use of taxes and carbon emissions permits is helpful to lower consumption, therefore lowering the negative externality. On the positive side, it can cause two effects. One effect is that it can lower the number of consumers if the money used on taxes and carbon emissions permits are mostly placed upon consumers. The other effect is that it can also lower the number of providers for this service – flights – if the money used on taxes and carbon emissions permits are mostly placed upon the firms. The decision on how much of the money on taxes and carbon emissions permits are placed on consumers or producers depends on the elasticity of the service. Since flying is pretty high class service, especially in Europe where there are trains going everywhere, the service can be considered "elastic". It is a superior good/service, and that means if plane ticket prices rise, there may be a high decline in consumption, lowering revenue immensely. That means the money used on taxes and carbon emissions permits is probably mostly placed on the firms, rather than the consumers lowering revenue, but not as immensely as it would if it was place on consumers. The negative side of this is that when the carbon emission permits is that if trading is not limited and this policy becomes an international policy, developed countries may start purchasing carbon emission credits from developing countries which defeats the purpose of these permits – to reduce negative externalities. Also, the use of taxes frankly does not stop the pollution or negative externality that happens because of the consumption of the service. Taxes would help the government and increase government revenue though, so it helps the government more than the environment. If governments really wanted to help the environment, they would limit the consumption of this service and allow only certain number of flights a day or something along the lines to that.