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  • Market failure

Click to read the article below and then answer the questions:

UK carbon trading system likely to lead to government intervention, traders warn

  • Outline the purpose of the UK ETS

  • Define negative externality

  • Using a diagram, analyse the effects of the overproduction of a negative externality

  • Explain the ‘cap and trade’ approach to reducing emissions

  • Using a diagram, explain why ‘pent-up demand and the UK’s strict emissions targets are expected to lead to a sustained rally in the price of carbon credits

  • Briefly outline the possible interventions under the Cost Containment Mechanism (CCM)

  • ‘Any intervention would . . . prove embarrassing for the British government . . . raise questions about its commitment to allowing market forces to determine the price commensurate with its ultimate policy objective of net zero.’ Using a diagram, analyse the effects of such intervention

Gavin Clarke, Emmanuel College

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