Cap and Trade Policy Paper

A cap puts a maximum tolerable level of pollution and makes companies that go beyond this limit to pay. This is a sure way of guaranteeing lower emissions. The cap is usually measured in billions of tons of carbon dioxide per year. It covers economy wide emissions including natural gas generation, electricity generation, large manufacturers and transportation. Emitters are only allowed to release a set limit of pollution. Permits are issued to emitters and operating without a permit is against the law.

But based on the previous analysis, for Canada, the method that can impact carbon dioxide emissions the most is the carbon tax system. A proper carbon tax will deter fossil fuels and encourage clean energy (Carbon Tax or Cap-and-Trade?, 2014). The carbon tax will provide a predictable price for carbon dioxide emissions for Canadians. As well, with the carbon tax system, there is more motivation to adhere to regulations because it will become a standard. The revenue generated from the taxation will also assist Canadians by ultimately facilitating greener practices by subsidization and funding environmentally conscious research. Finally, the practicality of reducing emissions under a carbon taxation system is much more functional than the cap-and-trade program. The carbon tax system has been cited to both grow the economy while reducing emissions. That is why a carbon tax system is a superior approach to the experimental cap-and-trade program for reducing emissions and growing the economy (Brander,

Cap and trade is a regulated program to offset any negative damage to the environment by private business activity. This market system has the potential to make efficient product cost, and is a sure way to guarantee lower emissions. Emitters are limited a set amount of pollution to be distributed and operating without a permit is illegal.

Possible policy instruments that are most likely feasible to combat and reduce emissions levels are cap and trade systems in the carbon market as well as laws and regulations that limit emissions or set standards for companies to follow during production in its industrial sector. Both of these have already been utilized by the Ontario government to mitigate emission levels. Ontario’s FIve-Year Climate Change Action Plan, 2016-2020 utilizes a cap and trade system that partners with Quebec and California. The cap sets a maximum limit of greenhouse gas pollution that can be emitted with a lowered limit every year. The trade

“The cap”: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. “The trade”: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily.

This is the third class I have taken where we have discussed cap & trade vs. carbon tax. I believe both systems have their merits and utilizing either one would positively affect climate change and the economy. I believe carbon taxes are the better of the two options because it is simple and immediately causes companies and individuals of ways to reduce fuel and energy consumption. Simply put the less fossil fuel used the less the tax affects the company or individual. Secondly money collected in taxes should be based right back to the businesses and individuals in the form of tax breaks and rebates. This will spark growth in the economy. Cap and Trade on the other hand set a predictable carbon dioxide levels and rewards companies for being beneath those limits by allowing them to sell their their unused allotment of carbon credits. Companies that have been able to meet their required levels can in turn by these extra allotments and in turn by themselves more time to develop new ways to reach the predetermined goal. This later system spars free trade and will have the overall affect of reducing carbon emissions however I believe it creates less of an initiative for bigger more lucrative companies to reduce carbon emissions and just gives them a way to buy themselves a way to continue to pollute above acceptable standards.

Much policy discussion about climate change suggests that surplus carbon emissions are the result of failure of the market. Since the ongoing costs of environmental degradation and climate change are not internalized in pricing fossil fuel; a commonsense (and widely flavored by policy makers in the international community) economic solution is to internalize the cost of carbon emissions. Cap and trade emissions trading schemes have proven largely popular in the global policy-making community, as they enable market flexibility and allow for international targets to be met.

An emission allowance is an authorization by a permitting authority or the Environmental Protection Agency Administrator to emit a specified amount of pollutant during a specified period of time. This equates that if a company reduces its amount of pollution to lower levels than the allowance, then the company could sell emission credits to companies that fail to reduce their pollution or buy additional emission allowances if needed [Emission Credit]. An emission allowance is also referred as a permit, typically a marketable commodity that may be sold, traded, or bought for usage by entities covered by the emission allowance (EA) programs [Cap and Trade].

3) “Cap and Share” is a plan, which attempts to balance the labor and costs of reversing climate change, between all nations (rich and poor).

Over the years CO2 levels as a trace gas in the atmosphere has been increasing. The rising levels have been linked to rising temperatures throughout the world. The carbon dioxide levels increasing have been linked to humans emitting the gas into the air through different ways, such as electricity usage and gas consumption. This has raised significant alarm concerning its potentially harmful effects on climate change. To combat this, differing policies and ideas have risen to light. These policies include ideas such as a carbon tax and just cutting allowed carbon emissions across the board. One of the more prominent policies is carbon cap and trade, which entails capping carbon emissions and allowing companies to trade their carbon

Therefore, cap-and-trade, a market-based mechanism, allowed a process for business to buy and sell the right to pollute (Lawrence & Weber, 2017) as the EPA, with the Clean Air Act of 1990, placed a national cap on emissions of sulfur and nitrogen oxides (Allen & Yago, 2011). Ultimately, the cap-and-trade system created incentives to explore ways to reduce sulfur dioxide emission by taking advantage of low-cost abatement options. Subsequently, if annual emissions exceeded the allowances allocated to that facility, the CEO may purchase allowances from another company or reduce emissions by installing pollution controls through the cap-and-trade program (Schmalensee & Stavins,

Although the Kyoto Protocol had the right intentions with the desire to lower greenhouse gases, however, lowering gas emissions would hinder the economy for many of the nations without a proper substitution or solution. This is a proposal that would not sit well with many of nations; especially since the nations did not all agree climate change. The Kyoto Protocol would produce concentrated costs because lowering gas emissions would affect nations differently, and in addition to that, there would exist a distribution of benefits because not all nations would benefit equally because their polluted atmospheres vary. With a proposal that could hinder the progress of they industry, “both economics and politics deal with problems of scarcity and conflicting preferences” in which nations would rather support the economy than take a risk at an opportunity to help the atmosphere (Wilson 363). The Kyoto Protocol falls under the categorization as entrepreneurial politics where the overall conclusion contains distributed benefits and concentrated

In the second evening lecture, Elizabeth Beale spoke about eco-fiscal policies with a focus on carbon pricing. According to Beale, increasing carbon emissions are not only harmful to the environment but also create several negative externalities such as damaging crops and higher health costs. For this reason, carbon pricing would help to shift these costs back to those who are responsible. Beale proposes two options for carbon pricing,, a carbon tax or a cap-and-trade system. A carbon tax is simpler as the government sets a price for greenhouse gas emissions. A cap-and-trade system is more complex as allowable emissions are capped, and then the government distributes emissions permits, which are tradable. Beale claimed that no one system is more superior than the other, especially as the differences between the two get blurred as more jurisdictions are adopting more blended systems. Beale concluded her lecture by looking at the current carbon pricing policies implemented throughout Canada. In British Columbia, a carbon tax of $30/tonne was implemented in 2008, which caused fuel use to drop by 16% from 2008 to 2013. In Quebec a cap-and-trade system was implemented in 2012 that covered 85% of emissions with the goal to reduce emissions to 25% below 1990 levels by 2020. However, despite the action on carbon pricing in these provinces, the Atlantic Canadian provinces have yet to implement any type of policy.

In other words, the environmental performance is easier to measure and there is guaranteed reduction of emissions with cap-and-trade. In regards to taxing carbon, the reduction in emissions are less predictable since a level is not established in advanced. Many environmental groups have cited this as a major fundamental downfall and risk of levying a tax instead of the cap-and-trade approach (Sheehan, 2010).

The purpose of this paper is to analyze existing and proposed methods to mitigate private sector emissions by the United States federal government. This paper reflect upon the costs and benefits of using a command and control method of mitigation against using a method of carbon pricing. The most important point of analysis in regards to command and control is the Clean Power Plan of 2015, currently under a stay by the United States