Free emissions of greenhouse gases into the atmosphere are recognizably the main cause of global warming. Behind the overwhelming support for marketable permits for atmospheric greenhouse emissions, advocates are no less passionate on the consensual acknowledgement that an effective climate change policy has to adopt a pricing strategy on such permit emissions (Baumol and Oates, 1988). A broad spectrum of concerned individuals and corporations are in agreement over one basic fact: a price-tagged emission of global-warming greenhouse gases is an idea whose time is ripe. Whether not available for now, legal, binding pricing mechanism on the use of traditional fossil fuels seems all but inevitable in the 21st century.
Nevertheless, pricing carbon emissions remains in dispute among policymakers and academics voicing backing to the old command controls. Evidently, nations only possess limited experience with the cap-and-trade system in controlling greenhouse emissions. This paper endeavors to highlight the intrinsic worth and costs of implementing a cap and trade policy in pollution abatement. Emission trading permits with a pricing scheme on carbon usually strives to achieve two interrelated but beneficial ends: discouraging— with increasingly inhibitive economic costs — the use of traditional sources of energy such as oil, natural gas and coal, to inspire the development of innovative renewable sources of energy that are less costly to the environment (Wills, 2006).
Cap-and-trade policy instruments place progressive harsher limits on the usage of fossil fuels by conditioning pollution limits from industrial power plants among other major emitters of greenhouse gases through licensing. Extra emissions above the prescribed limits are surcharged prohibitively. In contrast to the traditionally regulatory command models that were rather rigid with regards to the requirements specified outcomes irrespective of the costs incurred, the prohibitive costs in cap and trade systems provides the needed incentives to either shift to the best alternative sources or to make more than necessary steps for compliance (Kurkowski 2006).
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