Difference between revisions of "Cap-and-trade"

Latest revision as of 22:58, July 22, 2010

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Cap and Trade

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-{{merge|Cap and trade}}
+#REDIRECT [[Cap and Trade]]
-'''Cap-and-trade''' policies are systems for reducing the output of unwanted production by-products using [[free market]] systems of allocations.  In general, they are used to reduce [[pollution]], such as [[carbon dioxide]] emissions by placing a "cap" on an entire industry, which is governed by certificates permitting emissions, which can be traded.  For instance, if the target amount of emissions is x kg of carbon dioxide in total, permits will be distributed between businesses to a total of x kg across the industry as a whole.  Thus, companies have the ability to pollute up to the number of permits they hold &mdash; if they pollute more, they must either invest in pollution abatement technologies, or purchase more permits on the free market.  Theoretically, this results in the most cost-effective reduction in pollution to the desired level, relative to other policies &mdash; since the free market allocates permits to firms where pollution reduction is most efficient.  These policies are often held up as good examples of [[liberal|neo-liberal]] market-based methods of government intervention.
-However, these policies invariably increase the price of goods for consumers, while simultaneously increasing profits for certain firms in the economy under specific allocations of the permits.  Efficient distribution of the initial set of permits is difficult in the real world, and generally is sub-optimal in practice.  Furthermore, it is not usually possible to isolate specific industries for targeting, resulting in spillover effects to other industries and no discernible benefit for either the environment or the economy as a whole.
-[[Category:Environmentalism]]
-[[Category:economics]]

Difference between revisions of "Cap-and-trade"

Latest revision as of 22:58, July 22, 2010

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