Tuesday, May 18, 2010

Cap and Trade: A real solution or a problem?

Environmental issues such as global warming have reached its alarming stage which made the entire world investing extra efforts to resolve it. One of the solutions that nations considered is the “cap and trade system”. Cap and Trade is a regulatory system which allows pollution emitters to trade pollution permits, and allowances among themselves. It aims to reduce emissions of carbon dioxide and other greenhouse gases by defining limits on the said emissions.

How it works?

The government sets a cap (annual limit), deciding how much pollution in total is allowable for industry and commercial sectors. Companies are given credits (allowances) and licenses depending on their industry, how large their company is, and other related factors. Then, carbon trading occurs when a company comes in below its credits. This company can then trade its extra credits with other companies needing the credits. While for other companies who go beyond their cap a penalty will be issued (referred as “pollution tax” by many).

Can it really help in solving global warming?

The benefits for the economy and environment are quiet promising if every government will provide an “effective” cap and not an overstated one. However, the bad thing here is that, cap and trade serves as a tool for other companies to pollute more instead of a system to penalize them. If the proper limit or cap is not set accordingly, it will simply works this way; Companies who pollute less can trade or sell more credits while companies who pollute more can continuously go on with their “environment-polluting” business without being penalized. Like what happened to European Union governments who have given away most permits to many companies rather than making these companies buy them (ref: nytimes.com). 

All the same, this leaves the question unanswered. It could or could not help solve global warming depending on nation’s regulation. And worst, it could result into a bigger problem for both economy and environment.

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