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A cap and trade method is a system aimed at bringing pollution to manageable terms. It targets to reduce pollution in an industry, region, and even the entire world. Today, pollution is one of the major problems facing each and every county in the whole world. It is also evident that the future of the world is at risk due to problems associated with pollution. Many people in pollution management have shown their support for cap and trade suggesting that they seem more effective. More so cap and trade system tend to minimize the amount of carbon (IV) oxide which is a greenhouse gas. The increasing levels of carbon in the atmosphere has lead to the increase in the earth’s temperature and causing climate change which in some instances has led to damage of the environment. This has led to alarming calls to reduce the emission and as a result the adoption of cap and trade.
In this methodology, the government in question will have to set the cap first which entails the total population that the country wishes to allow. The countries are the given the credits which is pollution license depending on their size, the kind of activity they indulge in, and the size of their output. If the company happens to come below its cap that is it pollutes less, it is issued with extra cap credits which in turn it can trade with the other companies. This can seem to be great for big companies who pollute less. This is because they can engage in the trade of their credits and as a result, making substantial profits and on the same time, managing their pollution levels (Centre for Fiscal Accountability 1).
This cap systems show that the nation’s intention is to reduce the total emission but not creating fines for pollutants. It is effective in the sense that it seems soft to the companies since they are not forced to reduce their pollution to some level. It is therefore more flexible which is beneficial to the market. This method is easier to administer and it results to effective control of pollution. It is mostly referred to as carbon trading since it is mostly used in control of carbon emissions.
Though the system is good it requires moderation and control by the governing body. The selected body to curb pollution must constantly monitor emission of pollutants and they must be sure that the reported emission is actually the correct one. They can also impose fines to the companies which release harmful pollutants into the environment. The cap system also acts as an incentive to use polluting free modes of generating energy to be used in the production process. Specifically cap systems are installed to reduce the emission of the carbon (IV) into the atmosphere. Carbon IV oxide is not toxic in any way and can not be harmful when exposed to human beings in small quantities. It is known as a gas that is vital to all forms of life’s ranging from plants to animals. As per the research, it is very vital in farming and production of foodstuffs.
Cap and trade systems seeks to reduce the emission of the greenhouse gases more so the carbon (IV) oxide to approximately 60-80% before the year 2050 with the base year being 2005. By engaging in cap and trade system, there are costs that are associated in meeting the change. According to the center for data analysis, after the adjustment for inflation, there will be a total loss of about $4.8 trillion in then gross domestic product by the year 2030 if the cap and trade system was to be adopted. It is also expected that there will be a total loss of about three million job positions. Typically this greatly exceeds the economists’ expectations if the all factors were to remain constant and where laws governing global warming were not installed. It is predicted that the people moving out of employment positions due to this system can find employment in the private sectors but there will be still job losses in the economy (Kreutzer 1).
About 86% of the energy used today either emanates from carbon either directly or indirectly. Switching from non-carbon modes of energy production in a projected period of about 20-30 years is really expensive and therefore it is limited. It is therefore evident that, if emissions were to be reduced, the rate of emery use must be reduced in the same way. If then energy usage are cut this will in turn cause a reduction in economic activities thus destroying employment positions and finally causing a reduction in Gross domestic product.
The cap and trade systems do not differ a lot from other forms of emission reductions since all of them aims at increasing the cost of the energy and therefore cutting the use of the same. With the current increase in the cost of other energy budgets to the consumers like that of gasoline, cooking gas the burden to them increases and as a result affecting employment, output and income. It is therefore vital to note that occurrence of these losses is after the end consumers of the energy packages have adjusted their energy usage such that they have moved to energy efficient houses, switched to the use of smaller cars, and even adopted the use of energy efficient production methods.
It is worthy to note that there is a great loss to the economy which can be associated with the loss of comfort, increase in energy based inconveniences, and also reduction in the level of satisfaction by these workers. All these bundled together can be a major blow especially to the production and manufacturing sector of the economy as it will lead to lower production and manufacturing and hence the income that is expected from these two core parts of the economy will fal (McKibbin & Morris & Wilcoxen & Yiyong Cai 2-3).
Even though the energy efficient based technologies are adopted, there will still be a great reduction in production. In order to counter, the amount of GDP and jobs lost businesses and household s in the economy may opt to switch to the greener methods. But it is evident that even if they were adopted the output will be much lower. For example if people were to switch from diesel generators of power to wind based generators, wind is unreliable and hence there will be so many instances that the productions won’t be possible compared to when if diesel was to be used.
Incase of the use of subsidized energy schemes or the energy efficient systems where there will be protection from the government, the situation will not be stimulus to the economy in the sense that all the effort that has been put into it do not cover the level of output realized. Such industries that produces less than what they are inputting are definitely shrinking the economy and therefore will result to a reduction in the overall income of the economy.
Putting into practice of the cap system in the United States aiming to cut the emissions by an average of 70% shows that there is a transfer of 5 trillion dollars in 20 years which shows that there will be greater transfer of money from the people to the government. This generally shows that the purchasing power of the household is significantly transferred to the government or the body responsible for issuing the emission permits. This tax therefore becomes the largest one in the entire economy (Broder 16).
The economy also experiences problems in installing the cap and trade systems which are considering the fact of protecting the domestic industries from the stiff competition from the industries within the economy who have not installed a mechanism to curb the emission of carbon (IV) oxide. Therefore before a carbon cutting system is installed in an economy, the advantage level of the same must be fully considered since different economies have different ways of curbing the emission while various industries would put different mechanisms into practice in order to reduce the emission. The indifference situation will tend to create global trade wars.
Considering the analysis that was carried out by the environment protection agency shows that 60% reduction in the emission of greenhouse gases in the atmosphere will affect the temperature by a very small margin may be anything between 0.1-0.2 degrees. This shows that the margin is small compared to the hustle of trying to install the emission cutting mechanism. Therefore, economically, the nation in concern will have lost trillions of GDP and also so many jobs would be lost in the run to curb a small fraction of temperature change which will be insignificant in about 85 years to come. In conclusion, it would therefore be reasonable for a country to use cap and trade mechanism if the total loss associated with its use is expected to be less than the effect of emission.