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Comment on the statement that only carbon trading is likely to be an effective and efficient way of reducing C02 emissions.

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Introduction

Comment on the statement that only carbon trading is likely to be an effective and efficient way of reducing C02 emissions. Carbon trading is the process of buying and selling carbon credits. Large companies or organisations are assigned a quota of carbon that they are allowed to emit. If a company's emissions are less than its quota then it can sell credits if emissions are more then it will need to buy carbon credits. This may be effective in the way that companies will try to reduce their carbon emissions in order to reduce cost incurred from purchasing extra carbon credits. However this may not be effective if the opportunity cost for reducing their carbon emissions may be greater than if they spent the extra amount of money to purchase other company's carbon credits. Therefore there will not be much of a change in a company's emissions. Therefore this will only be effective if the government enforces to a certain standard as if they do not then company's may disregard it and continue polluting. "Developing countries would face a lower burden in reducing emissions than developed countries". ...read more.

Middle

There are many market failures that are linked with the global problem of emissions. These are; demerit goods. These are goods that we over consumed and overproduced from the consumer's or society's point of view due to information failure. Another market failure is merit goods. These are; goods that are under consumed and under produced because there are benefits to consumers or society beyond those consumers consider because of information failure. Private and public goods are also market failures. Private goods are those over which there are private property rights. Public goods are goods that are non-rivalry and non-excludable. Another market failure is the existence of free riders. There are many free riders as it saves costs and money just to ignore these emissions. There are many different ways to reduce emissions. These are regulations, subsidies and carbon trading. The government could also use carbon taxing, this is a tax on the carbon a company produces. Meaning companies will be charged for the amount of carbon they produce. However it will be difficult for the government to enforce this as they will need to spend lots of money to keep an eye on businesses and measure hw much carbon they ...read more.

Conclusion

Regulations are rules made by a government or other authority in order to control the way something is done. These should effective if the governments have tight restrictions on the amount of carbon emissions a firm is allowed to produce. Governments will need to enforce some discipline like France is trying to do as it is saying that "failure to meet agreed targets would result in trade sanctions and tariffs to provide countries with incentives to honour their commitments". However it will be difficult as this will be very costly to enforce and it will be difficult to keep control of all polluting firms. Overall I believe it would be best to go ahead with carbon trading as it does not have any perverse incentives and it allows non-polluting firms to benefit and encourages others to want to benefit from these extra profits from selling their permits to other companies. The other alternatives may be good in some circumstances such as in a recession where carbon taxing will excel as it is certain unlike carbon trading where firms may not be able to sell their permits and thus the incentive to reduce their emissions will be gone. ?? ?? ?? ?? 20081201 ...read more.

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This essay raises most of the arguments for and against carbon permits but there are some fundamental misunderstandings. Its big attraction is that it is market based so after the initial setting up of the scheme and the regulatory bodies then it can be left to run itself. A big disadvantage is the need for international cooperation. without it it cannot work as all the polluting companies will move.

Marked by teacher David Salter 12/02/2012

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