Microeconomics Ch 12-15

Polluter Corp, has recently spent $3 million to purchase emission allowances, with a vintage year of 2012, in order to meet the need for additional EAs in the fiscal years 2010-2014. They will also need to sell EAs, with a vintage year of 2016, in order to offset the costs of the purchase. It is to my understanding that the need for EAs arose because of the significant amount of greenhouse gases emitted by the Company 's antiquated manufacturing facilities. In order to remedy this situation, plans were made to upgrade the facilities in 2014. The reduced gas emissions that the upgraded facilities are expected to provide will render EAs with vintage

An added twist on the cap policy allows firms to trade emission allotments between themselves based on the buyer of allotment bargaining with the seller over the proper price to pay for the extra allotment. A two-panel diagram is needed to better understand the logic of trading emission allotments. Figure 4 illustrates the marginal cost of reducing emissions of two firms. One firm is run on older technology with high abatement costs that goes from right to left with zero costs represented at the lower right-hand corner of the diagram. The other firm has newer technology in its plant with lower abatement costs that goes left to right with zero costs represented at the lower left-hand corner of the diagram. The width of the horizontal axis is the reduction in emissions that must be achieved overall to an efficient level.

A cap-and-trade program sets a maximum level of pollution, and distributes emission permits among firms that produce emissions (Carbon Tax, 2013). The purpose of which is regulation of specific emissions by stationary and mobile sources, and setting a specific level which all emitters are re-quired to meet. Cap-and-trade possibly has less of a direct economic component to it than the other alternatives to reducing emissions described due to the ability to trade permits versus the expendi-ture of resources improving technology, with some arguing it is to the detriment of the environment. As stated in the article found in Reclaiming the Environmental Agenda, by Ashford, N. et al., 2008, “being a market-based instrument, ‘the cap-and-trade option suggests that at least this form of MBI may be more environmentally effective than the usual command-and-control alternatives, in addition to being more economically efficient.” (Ashford, N. and Caldart, C., 2008, p. 908).

Cap and trade is a system aimed at diminishing the rate at which carbon is emitted into the atmosphere by creating an economic system based on meeting a certain minimal threshold or paying low-emitting companies for the right to emit in their place. For example, if company A only emits half of the emissions cap, that company can sell (or trade) the remaining credits to company B, should company B choose to emit one-and-a-half times the cap. A main objection to the cap and trade system is that it is not a strong enough means by which to curb emissions of fossil fuels and is inferior to specifically stronger carbon taxes. While initially appealing, the notion of simply strengthening carbon taxes fails to properly stifle carbon emissions and to adequately incentivize “green” development in comparison to the cap and trade system, preventing carbon taxes from occupying a central role to mitigate carbon emissions.

Cap and trade is a cost-effective method for reducing greenhouse gas emission/pollution. The amount of emissions that are produced by the economy (cap) is limited and allows those insured by the cap to trade amongst themselves (trade) in a flexible and cost-effective method/manner, creating a price on carbon pollution. The "cap" sets a maximum limit on the amount of greenhouse gas pollution that regulated emitters collectively can produce. Each year, the cap is lowered, requiring industry and other greenhouse gas polluters, such as natural gas distributors and other fuel suppliers, to reduce their emissions. The "trade" refers to a market where companies can buy or sell “allowances,” or pay others to reduce emissions on their behalf, in

Cap-and-trade is a program which uses a market-based mechanism to control greenhouse gas emissions, the primary driver of global warming. The “cap” sets a limit on emissions, which is lowered over time to reduce the amount of pollutants released into the atmosphere. It limits emissions in electric power generation, natural gas, transportation, and large manufacturers. The “trade” creates a market for carbon allowances, leading to more cost-effective pollution cuts, and incentive to invest in cleaner technology. The less they emit, the less they pay, so it is in their economic incentive to pollute less. Each allowance (typically equivalent to one metric ton of carbon dioxide) are auctioned or allocated to regulated emitters on a regular basis.

The government sets an industry-wide limit to carbon production. Corporations that produce more than the set carbon limit are able to buy allowances from corporations who produce below the allowed amount. This creates a market for carbon so that companies can actually make money by reducing their carbon output. As time progresses, the government will incrementally lower the cap, which will reduce the number of allowances issued and increase their price. Ontario's Climate Change Mitigation and Low-carbon Economy Act, 2016 (the "Climate Act"), creates a cap-and-trade system that covers 82 percent of Ontario's direct emissions. This system covers all fossil fuels (e.g., gasoline, diesel and natural gas) used in Ontario by individuals,

It is said that (Revelle 2009) ‘A cap-and-trade system emissions by limiting the quantity of a pollutant (carbon dioxide [CO2]) that can be emitted and then allocating a corresponding number of tradable emissions permits to sources covered by the program’. The total allowed emissions are separated into individual permits which are allocated to the sources covered by the program; each presents the right to emit a certain quantity of the pollutant. At the end of the year, the emissions of each regulated source must be reported to be retired from the system. It is also mentioned that

CAP and Trade is a cost-effective method for reducing emissions. The world’s largest implementation of Greenhouse gas trading system is the European Union Emissions Trading System (EU ETS) and they have been environmentally ineffective. The result of price crash non-stability in California and Quebec are also environmentally ineffective. In 2016, the emphasis was on EU ETS’s fourth phase (2021-2030) which was what the European Commission, presented changes for. The purpose of the presented changes is to bring the cap into line with the EU's 2030 objective, reducing Greenhouse Gas emissions to at least 40% nationally by 2030. The EU provides a better goal of free allocation rules and further supports low-carbon innovation and energy sector transformation. To meet the legal requirements and to compensate for excess pollution EU ETS should reduce GHG emissions, and buy emission allowances in the carbon market. They could also reduce GHG emissions

“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.

Though the term 'cap-and-trade ' is mostly referred to efforts in reducing carbon emission, the initial idea of trading emissions was applied to SO2 emission control. During Regan administration from 1980 to 1988, 70 bills were written to address SO2 emission and acid rain control. However, such 'command-and-control ' policy was too costly to operate. It was not until 1989 the government proposed emission trading as a means of reducing SO2 emissions2. Cap-and-trade officially became part of Clean Air Act 19903. The result from this very first cap-and-trade initiative was very encouraging-3 million tons of acid rain emissions have been cut. With the recognition of climate change, cap-and-trade was proposed to be a solution to dealing with carbon emission.

Environmental credits (ECs) such as carbon credit, nutrient credit, and water quality credit are designed to conserve the environmental and ecosystem services and to promote sustainable development. ECs-trading in a market creates incentives for the protection of environmental amenities along with minimization of associated externalities. It also helps to meet the regulatory requirement for the emitters. The regulation restricts stakeholders to load or emit pollutions in specified amount (i.e. emission cap) but the flexibility of loading emissions is maintained to allow trades to occur between different agents. The least polluting agent can sell the conserved amount of pollution (i.e. specific emission permitted by regulation minus emission

Carbor-offsets oporated by purchasing carbon credits which are sold in metric tonnes of carbon dioxide (CO2e). Recording to Newman’s decision preliminary research the carbon-offset market might proposal low-cost prospect to reduce GHG emission, Millipore can purchase carbon offsets to help encounter their aggressive use of GHG in the company. Apparently not all stakeholders are seeing from a different perspective and consider purchasing carbon offsets would create an illegitimate attempt to reduce target without actually reducing emission in their own operations. Offsetting one tonne of carbon with a carbon credit means there will be one less tonne of carbon dioxide in the atmosphere than there would otherwise have been.

A long time ago, cap and trade use to be known as “Emissions Trading.” Is is a set of policies that results to a mandatory cap on pollution. Around the world, governments have successfully worked on this cap and trade system.

Pollution, specifically global warming, is of growing concern to people and governments. It is a controversial issue whose validity is still being debated by scientists. The Kyoto Protocol is an international attempt to address global warming through emissions controls. Traditional neoclassical economic models do not incorporate pollution in rudimentary theories of supply, demand, or pricing, as a result, firms do not consider pollution as a cost of production, which leaves government regulation as the primary method for controlling these externalities. The goal of emissions trading is to allow one business, which can make greenhouse gas emission reductions for a relatively low cost, to sell