Cap and trade policy mechanisms and environmental outcomes

Cap and trade policy is a system that allows the management of pollution and targets at reducing the overall pollution within a region, country or industry. In this system, a government authority sets the maximum allowable pollution referred to as the cap and then issues credits to companies which are basically licenses to pollute. The set standards depend on the size of the companies, the industries they are involved in among other things. Whenever a company achieves pollution standards that are below the cap then it is awarded extra credits which he may trade with other companies. This policy is advantageous to those companies that achieve levels below the cap while it penalizes those that operate above the cap but the overall aim of pollution reduction is achieved.

This system can be implemented in two forms, the cap-and-grandfather and the cap-and-auction. The cap-and-grandfather is a market-based system where the present polluters are given the right to carry on polluting, modulo some averagely minor and politically bargained reduction. This right is given as "allowances" that they can sell to other polluters. However, in cap-and-auction, the allowances are auctioned and awarded to the highest bidder instead of being grandfathered.

Discussion

The implementation of this system has faced a number of issues and concerns most of which directly affect, these range from the mode of implementing it to its effectiveness. As it is now is that the government should be implementing the policies related to the cap and trade policy, this may sound to be a good idea but a closer look reveals that there are a number of weaknesses related to such. Many governments, that of the United States included, are well-known to harbor a lot of corrupt officials who can do anything to their favor. Such officials will expose the system to consecutive fraud and corruption which will end up rendering the system useless and ineffective. It is also a known fact that the government has a chain of bureaucracy which will lead to waste; these have been experienced in many government programs. A number of corporations can find a way of getting extra free credits by following such loopholes which will make others get undue advantage over their competitors while at the same time compromising the overall goal of the system. However, finding an alternative body to implement this system has been a problem with many people suggesting that the best body to implement it is the government. The argument has been that the government has the needed resources and the needed authority in implementing the policy and thus will face very few challenges. The requirement for this is that everyone should be watchful for fraud and a means of monitoring and preventing fraud and corruption, and reducing the bureaucratic waste should be developed. Whereas the government is prone to such the evils of corruption, there is no guarantee that a different body will not be faced by the same evils. It is therefore more convenient to have the government run and implement the system since finding another body to do it will lead to a lot of time wasting.

Another pressing issue is the sufficiency of this system with many arguing that when implemented alone it cannot be sufficient. As much as this system addresses the failure of the market in accounting for destruction to the climate, it is not able to provide enough incentives for the technologies and other steps that will be required to set up a spot on low-carbon economy. There is therefore the need to implement parallel policies together with it. Additionally, implementing the cap and trade policy alone will lead to a rise in prices of almost all goods and services since virtually everything relies on energy. The only way that has been suggested towards solving this problem is implementing parallel policies which will bring down the allowance prices, cut emissions, and save consumers' money by reducing their bills which are affected by energy. However, others argue that everyone should be ready to pay the price of damaging the environment through their actions and the best way to make them pay this is through the strict and sole implementation of the cap and trade system. This means that there is no need to implement parallel policies together with the cap and trade system so that whenever one uses energy that produces greenhouse gases in excess then the related costs are met that individual. Generally, as much as it is advisable to have people responsible for their actions, it is necessary that the best means of solving the already caused problem be found. Thus, the best option is implementing the cap and trade system together with other parallel policies such as involving utilities to produce a higher percentage of electricity from renewable energy sources.

The United States is the only country that is currently struggling with the implementation of the cap and trade policy, this is a big challenge since reduction of carbon emissions is a worldwide goal and meant for the United States alone. This has made many people to suggest that the United States stop struggling with a system that will have a negligible effect globally estimated at only 0.1%. This ineffectiveness is mainly caused by the fact that industries that feel oppressed by this policy will move to other countries that do not have this policy. Conversely, it is not wise to stop implementing the system in the simply because others are not since it is the right thing to do. The United States should just continue implementing the policy and try to convince other countries to adopt the system especially countries with high carbon emissions such as China and India.