Economics Dictionary of ArgumentsHome
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| Emissions trading: Emissions trading, or cap-and-trade, is a market-based approach to control pollution. Governments set an overall limit (cap) on emissions, issuing permits accordingly. Companies can trade these permits, incentivizing lower emissions. This system encourages efficiency as businesses innovate to reduce emissions, providing financial benefits to those emitting less and meeting environmental targets. See also Climate Change, Climate damages, Emissions, Emission targets._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Policy of the United States on Emissions Trading - Dictionary of Arguments
Kiesling I 34 Emissions permit trading/Policy of the US/Kiesling: The CAA regulations had not reduced the harms associated with SO2 emissions, but had relocated them, and many areas were still not meeting the CAA’s air quality standards. Economists working on environmental policy suggested a different approach. This different approach was emission permit trading. Emission permit trading built on a “netting” program that the Environmental Protection Agency (EPA) had established in the mid-1970s to allow new sources of SO2 in a region if they purchased emission credits from an existing source in the region. However, that program had substantial bureaucratic requirements that created high transaction costs (Tietenberg, 2010(1): 362). The EPA worked with economists to design a market for SO2 emission permits, or allowances. The design of this new market was also part of the process of negotiating the Clean Air Act Amendments (CAAA), which Congress passed in 1990 and authorized the EPA to design and administer. Title IV of the CAAA aimed to reduce SO2 levels by 10 million tons from their 1980 levels in a decade, implemented in two five-year phases. (In 1985 electricity generation accounted for around 70 percent of SO2 emissions in the US and coal-fired power plants accounted for 96 percent of that amount.) The design of this program, called the EPA Acid Rain Program, involved considerable bargaining and its implementation was extremely detailed. Kiesling I 35 Focusing on the most essential design details indicates how important Coase’s ideas were for the design and the ultimate success of the program. The Acid Rain Program included several innovative features (see Stavins, 1998(2); Ellerman et. al., 2000(3); and Sandor, 2012(4)). The CAAA targeted a total national quantity of SO2 emissions rather than individual source emission rates or technologies. It laid out an emissions reduction timeframe to meet the target in 2000. The total quantity, or cap, declined over time to deliver more emissions reductions. In Phase I (1990-1995), the 263 largest SO2 -emitting coal-fired power plants were required to reduce their annual emissions every year. In Phase II almost all fossil fuel-fired power plants were subject to the national emissions cap. The EPA used a formula to determine each plant’s allowable emissions, and each plant received emission allowances based on its historic emission rates (so that it could not manipulate its current emissions to affect its allowance allocation). The mechanism for meeting the Phase I and II requirements was trading emission allowances. Utilities would be required to have emission allowances, each of which permitted the owner of the allowance to emit one ton of SO2 in the year it was issued or in any subsequent year. If annual emissions exceeded allowable emissions, the utility had three choices: use an allowance it already owned, abate (i.e., reduce emissions), or purchase an allowance. If emissions were below allowable emissions, the utility could sell the difference. The number of annual allowances decreased over time, tightening the cap and ensuring emission reductions. This “cap-and-trade” system created incentives for utilities to find the least-cost ways to reduce SO2 emissions. >Cap and trade system/Policy of the US. 1. Tietenberg, Tom, 2010. "Cap-and-Trade: The Evolution of an Economic Idea," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 39(3), pages 1-9, October. 2. Stavins, Robert N. (1998). What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading. JOURNAL OF ECONOMIC PERSPECTIVES. VOL. 12, NO. 3, SUMMER 1998. (pp. 69–88) 3. Ellerman, A. Denny, Paul L. Joskow, Richard Schmalensee, Juan-Pablo Montero, and Elizabeth M. Bailey (2000). Markets for Clean Air: The US Acid Rain Program. Cambridge University Press. 4. Sandor, Richard L. (2012). Good Derivatives: A Story of Financial and Environmental Innovation. John Wiley & Sons._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Policy of the United States Kiesling I L. Lynne Kiesling The Essential Ronald Coase Vancouver: Fraser Institute. 2021 |
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> Counter arguments in relation to Emissions Trading
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