Discuss the pros and cons of cap-and-trade policies. Are you for or against? Why?
In the wake of the demand to decrease environmental pollution, there has been intense
in effective pollution control. One of the policies discussed in this regard is “cap and trade”
which aims at reducing the carbon emissions by factories by fixing a limit or a so called cap on
the amount of pollutants that can be emitted by these industries. According to an article
Guide to Designing and Operating a Cap and Trade Program for Pollution Control, a cap and
trade program establishes a total emission cap that decides a specific emission limit decided by
concerned authorities. The pollution target is pre determined and the cap is reduced every year in
order to achieve this target. The trade aspect of the system kicks in when those who manage to
be more efficient in their reducing their emissions get to sell of their remaining quota to the
companies who have not been equally efficient. The cap is then decreases every year which
penalizes those who pollute more to buy pollution quotas from more efficient firms. Therefore
firms have a further incentive to reduce their greenhouse emissions as it would be economical as
well.
There are several remarkable features in this program which makes it quite effective to
reach the pollution control target. Firstly, cap and trade policy sets a fixed pollution target
beyond which emissions are not allowed thus acting as a solid policy to keep the pollution in the
environment in check. Cap and trade also makes participating businesses fully accountable for
every ton of emissions by following protocols to ensure completeness, consistency and accuracy
of emission measurement as per the US EPA article, Tools of the Trade: A Guide to Designing
and Operating a Cap and Trade Program for Pollution Control. Thirdly this policy also
provides continuous incentives for innovation in emission reduction because of the value
incentive to invest in research and development of emission reducing technology. Robert N.
Stavins, the Albert Pratt Professor of Business and Government at John F. Kenndedy School of
Government also states that cap and trade program is a cost effective method which helps
achieve meaningful reduction in greenhouse emissions and has also considered it more effective
than other similar programs (Stavins). Finally, the cost minimizing feature of cap and trade has
long term environmental benefits. Driving down the cost of reducing a unit of pollution means
that policymakers and authorities can set targets that reduce more pollution at the same cost to
society. This system makes it economically and politically feasible to achieve greater
environmental improvement.
Various issues that have been raised against the problem in implementation of this
system and the theory behind it. In this policy there is no clear-cut way of distributing permits to
industry polluters. The whole system of selling, auctioning and distributing permits is very
cumbersome and will require a lot of government expenditure. The assumption adopted by
supporters of cap and trade policy is that the created market will result in a perfectly competitive
structure but on implementation it has been found that some of the key ideas do not fit within the
market structure. Distributing permits and operating on a trading platform may not decrease
transaction costs to an efficient level. Cap and trade has also been criticized by cynics stating that
some governmental officials may want to pass carbon cap and trade not because they are worried
about the environment, but so as to gain revenue, power, and control. Annie Leonard is the writer
of “The story of cap & trade” and has presented the argument that carbon offsets encourage
companies to cheat, it also does not penalize the companies who cause pollution and distracts
lead us to move towards more efficient renewable sources of energy might not be justified, since
solar and wind energy technologies are not capable of replacing the energy we now
produce by burning fossil fuel. It is completely unrealistic to believe that our future energy
demands will be met by solar or wind energy; therefore it might not be fruitful to invest in these
resources heavily while moving away from fossil fuels.
I am in the favor of cap and trade policy since it’s a program which is beneficial
economically, politically and environmentally. Also in the current scenario with increasing
pollution levels the government is obligated in putting forth programs that would decrease the
negative externality arising out of pollution. This program also does not diminish the incentives
of the businesses. There is also evidence in support of cap and trade program working
successfully on implementation. As per the US EPA published article “Cap and Trade: Acid
Rain Program Results “, The American Acid Rain Program was established under Title
IV of the 1990 Clean Air Act Amendments to reduce acid rain and improve public health by
dramatically reducing emissions of SO2 and NOx. This program capped the amount of sulfur
oxide that was emitted into the atmosphere and limit the amounts of nitrous oxide as well. In
2002, SO2 emissions from power plants were 9 per cent lower from 2000 and 41 per cent lower
consumers and it would cause loss of jobs they were all proven wrong. Also, European Union
reduced carbon emissions through cap and trade program and did not have adverse effects on its
GDP. This supports the argument that a cap is both efficient and will reduce carbon emissions.
Works Cited
Stavins, Robert N. “Cap-and-Trade or a Carbon Tax” Harvard Kennedy School John F. Kennedy
Cap and Trade: Acid Rain Program Results. US EPA. Web. 13 Nov. 2014
Tools of the Trade: A Guide to Designing and Operating a Cap and Trade Program for
Pollution Control. Ottawa: Environment Canada, 2005. US EPA. Web. 13. Nov. 2014.
