Question

Describe two economic market-based approaches for reducing greenhouse gas emissions. Discuss advantages and disadvant...


Describe two economic market-based approaches for reducing greenhouse gas emissions. Discuss advantages and disadvantages of each approach.

Answer

Two important market based approaches for the reduction of greenhouse gases from human activities are;

  • Cap and Trade Carbon: Cap and trade which is also known as emissions trading, is a principle with objective to reduce greenhouse gases from human activities. The government sets the maximum limit of the emissions of greenhouse gases and allows the emission below the cap.
  • Carbon Tax: It is the tax imposed by the government to reduce the emission of the greenhouse gases. Under the policy, the emitters pay tax per ton of greenhouse gases that they generate.

Advantages of Cap and Trade System:

  • It is cost-effective
  • It helps in reducing carbon footprint
  • Companies have option to trade unused credit
  • Companies get incentives, if they cut their emissions to invest into clean energy
  • This system rapidly reduces pollution

Disadvantages of Cap and Trade System:

  • If government sets higher cap, the pollution level will rise
  • The emission credit that a company hold is cheaper than it convert into clean energy
  • Cheating by the company is possible
  • It may cause rise in prices of final goods and services.

Advantages of Carbon Tax System:

  • It forces the polluters to reduce the emissions
  • It will raise the national revenue
  • Government has more revenue to invest for public welfare
  • It promotes the use of renewable energy

Disadvantages of Carbon Tax System:

  • Higher taxes can demotivate the business players
  • The prices of final goods and services may increase
  • Administration cost
  • Firms may change their nation where there is no carbon tax.
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