Economic Analysis of an Environmental Pollution Issue in the World Today

Cap & Trade, and Carbon Dioxide

What is cap and trade?

Why is it supposed to work

Speaker's notes: 'Cap and trade' is a technique to reduce emissions by 'capping' the amount of a pollutant that can be released into the atmosphere. These limits are then divided up amongst the polluters by the government. However, the polluters can 'trade' these limits amongst themselves. For example, a very clean company can sell its carbon credits to a dirty company (Chapter 7: 3). Unlike a carbon tax, this discourages producers from simply continuing to use fossil fuels, raising their prices, and passing on the additional expenses to the consumer (Chapter 7:3-4).

Slide 2: The downside to cap & trade

Heavy polluters may not reform their ways and may merely buy additional credits from companies that are already clean

The 'cap' system...
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