Question

12. Why could the market based environmental policies be an issue if the emissions are not uniformly mixed?

Answer 1

Tradable licenses could "reach the same cost-minimizing distribution of the control burden as a charge scheme while avoiding the issue of companies ' uncertain answers". After the mission (the total amount of pollution in the allowance) is fixed, firms will receive certain permits to share the amount freely distributed or auctioned. Companies that manage to keep their emissions below the assigned standard will either sell the additional licenses or placed them in their other products to neutralize the emissions that exceed the standard to use the licenses efficiently.

Meanwhile, firms with surplus emissions could purchase other firms ' emission cuts to satisfy their own requirement. Thus, financially-driven firms will reduce their emissions as much as they can.

During the 1980s, the lead trading strategy began with the objective of providing gasoline refiners a more flexible way of achieving emission criterion by decreasing the petrol lead content by 10 percent of its previous standard. The Environmental Protection Agency (EPA) then ratified the refinery's lead credit transaction and initiated a project to allow refineries to save their lead credits in the bank that had excellent impact. Although marketing benefits are difficult to assess, the approach appears to be relatively cost-effective solution

The market formulates constraints on CFC's methods of manufacturing and consumption and distributes an allowance that restricts such operations. Because different types of CFCs result in different impacts on the depletion of ozone, each CFC is assigned specific weight according to its depletion capacity. In this manner, businesses must first obtain the allowance to generate a certain content of CFCs. The market-based solution that sets a tax on CFCs gives the CFCs problem a good deal of flexibility. While the overall advantages on the CFC market are difficult to calculate owing to the lack of statistics on these problems, the relatively low trading costs

Many environmental organizations choose to stand back and hesitate because they are concerned that the general standard of environmental protection, on the contrary, will drop as flexibility in environmental regulations increases. Others prefer traditional public orders that have greater moral virtue than the market-based scheme that condones the "right to pollute." Moreover, in terms of standard command and control, many people just stick to the ancient pattern to fix issues based on their knowledge.