Question

1. Explain in words why a regulator might want to sell as many permits as firms are willing to buy at some high price in a cap-and-trade system. Then explain why the regulator might offer to buy as many permits as firms are willing to sell at some low price in a cap-and-trade system.

Answer 1

First let's understand the concept of cap and trade system, this is environmentally and economically approach to capping and controlling greenhouse gas emissions which is primary cause of global warming.it is a policy move aimed at controlling large amount of gas emissions from a cluster of sources.

Now , if we see that the regulator might want to sell as many as firms are willing to buy as this allows policy maker to set specific overall emissions targets because emissions will not exceed available allowance.

And there is other reasons why they want to buy it back as many as the from wanted to sell as because this system necessarily harms the economy because it is designed to raise the cost of energy. Looking to current situation of economy this is the expensive energy Policy, and cap and trade system is simply a mechanism to put a price on emissions in order to compel businesses and consumer to emit less.