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Pros And Cons Of Cap And Trade

558 Words3 Pages

Pros of Cap and Trade Improved Economic Efficiency With the alternative proposal of a carbon tax, the economy is inefficient due to a set unit tax on pollution emission for firms of every size (likely making smaller firms worse off). Though the cap and trade system is flawed, the economy will shift to a more efficient point when the cost of reduction for every firm is determined by the relative amount of emission credits the firm needs. Additional revenue and profit Unneeded emission credits will be sold from one firm to another, creating an additional source of profit for the industries; in turn, renewable energy sources will become more attainable. The government is also subject to profits on what is called the “right to pollute”. However, …show more content…

Firms will purchase more credits to pollute than they need, making these credits inactive in the industry and non-beneficial to society, decreasing them in value. The firms with excess credits will then have the ability to sell them to firms who need them for a price that is higher than it’s value. The instability of price and value can be seen as risky and undesirable. Opposing benefits of a carbon tax A tax on carbon emissions would lead to a larger market for economic efficiency and renewable resources due to the variable abatement cost associated with a tax. However, if firms find a way to manipulate the cap and trade policy by making a profit, there will be no benefit associated with switching to renewable resources. Secondly, the efficiency gained from a carbon tax could lead to more emission reduction than originally planned, while cap and trade is set with a specific amount of carbon pollution allowed. Increased prices The goal of Cap and Trade is the lowest possible cost to maintain a certain level of acceptable pollution. If the industries’ intentions are to lower carbon emission rather than to make a profit, it will, at first, require higher costs of production for more efficient, newly discovered energy sources, thus increasing the price of their

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