Question

In: Economics

Assume the major industrialized nations of the world agree to implement trading programs in carbon dioxide...

Assume the major industrialized nations of the world agree to implement trading programs in carbon dioxide emissions, the leading source of global climate change, within their countries. How might the initial allocation of emissions permits be allocated? What are some pros and cons of each method of distribution discussed?

Solutions

Expert Solution

Carbon Dioxide(CO2) emissions trading is a policy that aims to slow down CO2 emissions and thus global warming.

The initial allocation for emission permits will be done by government and that will allow CO2 credits to companies which will cap their CO2 emission. The companies cannot emit more than their avaliable credits. Those with extra credits can sell their credits to other companies. This is the trading part.

Pros and cons of this method will lie in how the monetary benefits the company will get from carbon trading.

Pro: This whole capping and trading mechanism will bring down the carbon emission and will force the companies to innovate and look for more cleaner and environment friendly options.

Cons: Trading can be used as a means to bypass the requirement to curb carbon dioxide emission by just buying credits and not investing any money on cleaner environment friendly processes.


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