Introduction
Emissions are part of externalities because they have both positive and negative impacts that can be interpreted in monetary value. Two policies that can be adopted to curb emissions include reducing the emission of greenhouse gases by giving incentives to firms and institutions that have cut emissions. In addition, there is a policy of setting standards regarding energy production. The latter aims at adopting green energy production such as wind energy, solar, biogas, and geothermal energy among other environmentally friendly energy sources. Apart from the production of green energy, energy firms can adopt the use of gasoline as a blending component because gasoline when mixed with ethanol significantly reduces carbon emissions. Incentive-based policies on the other hand focus on reward schemes to those firms that cut on carbon emission. Also, the policy can be exercised via imposing charges on those firms that emit high carbon wastes into the atmosphere. Setting standards as a policy contains well-laid strategies that are to be adopted in totality; whereas, incentive-based policies leave carbon reduction responsibilities to firms’ management.
Main body
Adoption of standard policies means production and use of green energy. Wind as a source of green energy is beneficial due to its renewability and availability. Wind energy is evenly distributed in the world. The cost of producing wind energy keeps getting cheaper as a result of new technologies that are being developed. It is forecasted that wind energy production will soon become the cheapest mode of energy creation on a large-scale basis.
Another advantage of wind energy is that it is a non-pollutant and permanently available. It is perceived that if all the wind energy is properly harnessed, the world would produce ten folds the amount of energy used today. This will be a real answer to dependency on fossil fuel energy whose supply depends on diplomatic ties and treaty signings.
In the determination of the cost of externalities for incentive-based policies, several ways can be used. One method is referred to as Pigouvian Tax in which tax is levied depending on the damage caused. If one gallon of fuel results in $7 damage to the environment, the same cost is incurred by the firm that produces that particular energy whenever sales are made. In ABC Company Limited produces 10,000 gallons a week, a tax levied against it will be $70,000 per week. These figures when translated to monthly or annual figures will be as high as approximately $3,360,000 annually. No firm can expend such rates without drawing the attention of the managers.
On the other hand, standard policies call for infrastructural development to set up machines and equipment to harness green energy. Wind energy has high initial charges that are incurred in the purchase of equipment and machines. In addition to this, extra parcels of land need to be considered and this cost varies from state to state and from one region to the other. Other costs would be labor and since it is a high technology field, more investment should be geared towards research and development. Assuming that; machine and equipment cost $2.6 billion, Land in Ohio ranges from $2500- $20000 per acre (200 acres = $2,000,000 on average), Labor costs are estimated at $15,000,000 annually, the total initial cost of producing wind energy would be approximately $2.5 billion. In the subsequent year, the costs will reduce drastically given that only labor and other recurring costs will be incurred. As the technology of wind power further continues, the cost of machines and equipment would be significantly lowered.
Conclusion
The justified level of emission should be compared to those set in the Kyoto and Copenhagen climate talks. For example, a 40% reduction of greenhouse gas emissions by 2020 can be a guiding principle for measuring the success of green projects. Another method of determining the reduction level of emission would be a summation of tax levied on firms to deduce the levels of emission reduction. 21st-century oil-producing companies must however develop an environmentally sustainable project for the benefit of both the firm and community. Consumers are becoming more and more environmentally sensitive and it is high time firms practice environmentally friendly business practices.