Discuss how to implement a cap and trade program for carbon emissions in electricity. Who should...

Discuss how to implement a cap and trade program for carbon emissions in electricity. Who should get the permits and who would benefit in that situation?

Expert Solution

Cap and trade program limits emission and also puts a price on it . It is one of the best policies formulated for environmental protection which is also very economical . The cap is the limit set on emissions on total that can be allowed , which is set based on scientific standards . Now the trade part is the marketable nature of the permits , which allows companies to buy and sell pollution permits as per requirement . This helps to maintain the total emission at a certain level fixed , also provides incentive to companies to pollute lesser and save money on permits .

In electricity , the production is done by power plants which generate a lot of pollution . A cap can be set on the emission level and permits generated among those power plants . These permits are traded as per market demand and supply for permits . Also consumption of electricity can be restricted by this cap and trade method . Firstly , a cap is set on total consumption of electricity . Now by trading the permits to consume electricity people can alter their consumption level , but the overall total consumption remains same in the economy .

The permits are given to power plants manufacturing electricity . The benefits of this system is reaped by every entity since there is a positive externality from controlling pollution . Firms getting the permits are benefitted .

Rahul Sunny answered 1 year ago

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