Extreme temperatures, an increasing number of natural disasters, and the rising level of the ocean are only some of the most urgent issues caused by dramatic shifts that are taking place. Environmental issues gained momentum decades ago, and countries, international institutions, and scientists have come up with various approaches and strategies to address the most acute challenges. Some of these methods are related to imposing restrictions associated with CO2 emissions. It is noteworthy that all these policies and regulations are often characterized by a heated debate. Some try to widen the reach of the restrictions, while others argue that they are ineffective or even harmful to the economic development of countries. Pollution rights trading (such as cap and trade) is one of the policies that are still under discussion in terms of their effectiveness. Although some imperfections exist, the approach can effectively control environmental problems related to CO2 emissions.
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First, it is important to pay attention to the peculiarities of this policy. The system of cap and trade encompasses establishing clear limits of allowed emissions for particular industries and facilities. On the other hand, the approach implies the allocation and trade of permits (Horne 1). The policy was introduced in the USA in the second part of the twentieth century by several economists who offered a system to reduce harmful emissions and facilitate the economic growth of companies (Goulder 87). The US Environmental Protection Agency allowed firms to trade emissions reductions within companies in 1974, and in 1997, such trade was allowed across enterprises. The cap-and-trade approach applied to diverse pollutants, including but not confined to sulfur dioxide, carbon monoxide, and nitrogen oxides, among others (Goulder 87). The trade was allowed as long as the overall volume of emissions did not exceed the established limits for every region. This practice has become widely utilized across the country, and other nations also used this approach.
The cap-and-trade system has been in use for several decades, and diverse studies and investigations have been implemented to evaluate its effectiveness. The major goal has been attained as the levels of reduction of emissions have been reached across the country (Goulder 89). Research also shows that this practice has been more cost-effective as compared to command-and-control regulations that applied restrictions only (Yale 535). One of the benefits of the cap-and-trade method is the fact that the government does not need to estimate the cost of emissions for every company or facility but can set a maximum based on the environmental peculiarities of the region (Yale 537). Companies have a certain flexibility, which enables them to better control their costs and remain competitive. Clearly, every policy cannot simply introduce restrictions as the economic interests of industries and communities should be considered.
In addition, to convenience and flexibility, as well as quite a definite reduction of emissions, the practice is beneficial as it encourages companies to be more sustainable. Firms try to reduce emissions and adopt innovative technologies to ensure the reduction of costs and their competitive advantage (Repetto 83). The price of emissions is constantly rising, which has an effect on costs and the price for consumers, so the market forces companies to innovate and develop higher standards.
However, like any other policy, the cap-and-trade system has some weaknesses. One of the major areas of concern that need further improvement is associated with fairness and equality (Farber 5). The impact on exact geographic locations has been different due to the specifics of the approach. The flexibility mentioned above has a darker side as the government sets the allowed maximum. The reduction of pollution in some areas is sometimes achieved at the expense of other regions. Companies can pollute certain areas to the allowed maximum level while other areas remain in a more favorable position, which raises questions related to fairness. Some opponents of the practice also argue that the imposed prices are too low and should be increased considerably to improve the environmental situation in the country and on the global scale.
At the same time, it is critical to remember the economic aspect and the well-being of communities. Living in a perfectly clean area is a good goal, but it cannot be achieved at the expense of people’s economic well-being. People need jobs, cities, and infrastructure, which has certain negative effects on the environment. It is impossible to eliminate these negative effects, but they can be minimized, which is achieved with the help of such systems as cap and trade. The same argument applies to fairness issues as areas can be disproportionately affected, but this is the price to be paid. It is noteworthy that the price is comparatively low as the favorable influence of the practice has been clearly identified. The reduction of emissions has been considerable, so the system can be applied further. Clearly, it needs constant improvements and supervision of the government and diverse institutions and organizations. However, criticizing some downsides of a policy and claiming for abandoning its use can hardly solve the environmental problem. Whereas, the further use of the cap-and-trade system and its constant perfection can contribute to controlling the environmental issues related to harmful emissions.
Farber, Daniel A. “Pollution Markets and Social Equity: Analyzing the Fairness of Cap and Trade.” Ecology Law Quarterly, vol. 39, no. 1, 2012, pp. 1–56.
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Goulder, Lawrence H. “Markets for Pollution Allowances: What Are the (New) Lessons?” The Journal of Economic Perspectives, vol. 27, no. 1, 2013, pp. 87–102.
Horne, Matt. Cap and Trade: Reducing Pollution, Inspiring Innovation. Pembina Institute, 2008, Web.
Repetto, Robert. “Cap and Trade Contains Global Warming Better Than a Carbon Tax.” Challenge, vol. 56, no. 5, 2013, pp. 31–61.
Yale, Ethan. “Taxing Cap‐and‐Trade Environmental Regulation.” The Journal of Legal Studies, vol. 37, no. 2, 2008, pp. 535–550.