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Emissions Trading Scheme Emissions Trading or Cap-And-Trade Is A Market-Based Approach Used To Control

Emissions trading or cap-and-trade is a market-based approach to controlling pollution. A central authority sets a limit on the total amount of pollution allowed and allocates permits to emit up to that limit which firms can trade. Firms needing more permits must buy from others using fewer, rewarding reductions. This allows reductions to occur where costs are lowest overall. Examples include the EU Emissions Trading Scheme for greenhouse gases and US programs for acid rain. India has proposed an Emissions Trading Scheme for particulate matter from stationary sources.

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74 views1 page

Emissions Trading Scheme Emissions Trading or Cap-And-Trade Is A Market-Based Approach Used To Control

Emissions trading or cap-and-trade is a market-based approach to controlling pollution. A central authority sets a limit on the total amount of pollution allowed and allocates permits to emit up to that limit which firms can trade. Firms needing more permits must buy from others using fewer, rewarding reductions. This allows reductions to occur where costs are lowest overall. Examples include the EU Emissions Trading Scheme for greenhouse gases and US programs for acid rain. India has proposed an Emissions Trading Scheme for particulate matter from stationary sources.

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abz
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EMISSIONS TRADING SCHEME

Emissions trading or cap-and-trade is a market-based approach used to control


pollution by providing economic incentives for achieving reductions in the emissions of
pollutants.

A central authority (usually a governmental body) sets a limit or cap on the amount
of a pollutant that may be emitted. The limit or cap is allocated or sold to firms in the form
of emissions permits which represent the right to emit or discharge a specific volume of the
specified pollutant. Firms are required to hold a number of permits (or allowances or carbon
credits) equivalent to their emissions. The total number of permits cannot exceed the cap,
limiting total emissions to that level. Firms that need to increase their volume of emissions
must buy permits from those who require fewer permits.

The transfer of permits is referred to as a trade. In effect, the buyer is paying a


charge for polluting, while the seller is being rewarded for having reduced emissions. Thus,
those who can reduce emissions most cheaply will do so, achieving the pollution reduction
at the lowest cost to society.

Command-and-control regulations take a variety of forms and are much less flexible
while emissions trading scheme or cap-and-trade are incentive based regulations. An
example of this is a performance standard which sets an emissions goal for each polluter
that is fixed and, therefore, the burden of reducing pollution cannot be shifted to the firms
that can achieve it more cheaply which can easily be done in emissions trading. As a result,
performance standards are cost effective in cap-and-trade emissions trading.

There are active trading programs in several air pollutants. For greenhouse gases the
largest is the European Union Emission Trading Scheme, whose purpose is to avoid
dangerous climate change. In the United States there is a national market to reduce acid
rain and several regional markets in nitrogen oxides. Markets for other pollutants tend to be
smaller and more localized.

An Emission Trading Scheme for Particulate Matter from Stationery Sources has
been proposed for India and a Pilot Project has been started by Ministry of Environment and
Forests, Government of India, New Delhi. Gujarat is one of three participating States and
Gujarat Pollution Control Board is the implementing agency for the project.

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