Question

Recent trends in managing environmental issues are favoring a market-based mechanisms model. Define “market-based mechanisms” and the approach known as “cap-and-trade.” In your opinion, is this a good approach to managing environmental issues? Why or why not?

Answer 1

In environmental policy formulations Market-based instruments or mechanism is the usage of free market , price , value of money and trade offs to provide incentives to polluters to reduce the negative extrenalities generated from pollution .

Cap and trade is a strong approch towards curbing of pollution generated through economic activities . The " cap" here refers to a limit on greenhouse gas emission . The limit is set after scientific reasearch . Any firm exceeding this limit is penalysed heavily . On the other hand comes the word " trade " . It is a market in which companies can buy and sell allowances that permit them to emit upto a certain level . Companies that are able to cut down on pollution can trade their allowances to other companies who require to pollute more .

Yes I think this is a good approach . Cap provides limits on emission levels . Which ensures that pollution levels in the environment does not exceed the safety levels . Also trading provides incentive for firms to reduce pollution faster and also cut down on costs . It is a cost effective method .