Question

Draw an analogy between a cap-and-trade program for air pollution emissions and a market for water consumption permits during a drought. how would these two policies be similar? how would they differ? Be sure to address the source of the potential gains from a market based approach in each of these cases

Answer 1

1. Generally, Emissions trading is an approach to control pollution through which it gains profits as an incentive for performing good by creating tradable permits of pollution.

2. The main form of the above mentioned point is known as ''Cap and Trade''. A Cap on certain emissions is set and companies need to hold on permit for every tonne emitted to CO₂ levels basically the companies which are covered under this scheme. Some say that this Cap and Trade approach is more preferable to other forms of say Carbon taxation which don't guarantee efficient taxation.

3. Similarly a market for water consumption permits during a drought is also the same approach where consumption levels are initialised where the consumption of water above the initial cap is challenging and no proper method of cap is still created yet and this would be definitely created, as by 2050 the demand and availability of water is a major challenging factor as it's turning down as scarce good which is basically a economic good and care is taken to implement these water consumption permits. Both these approaches work for the ecological balance but by creating markets for the government.