Emissions trading is a tool to limit the release of pollutants into the atmosphere.
Carbon trading, for example, is the form of carbon pricing which allows for trading, with the expectation of improving the allocation of resources to maximize reduction of carbon emissions. It is the application of emissions trading to greenhouse gas emissions (those that are accused of causing climate change - mainly carbon dioxide and methane). Such a scheme provides an economic incentive beyond lower energy costs by allowing companies to sell any unused carbon credits within the system for additional revenue. In theory, this system encourages businesses and consumers to reduce their environmental impact by improving the payback period of energy retrofit projects.[clarification needed] In addition, the carbon market is a major step to move towards ecological economicsW and overcoming the tragedy of the commons.[clarification needed]
A trading scheme is considered by most economists to be more efficient than a tax.
Models[edit | edit source]
Various models exist, including cap-and-trade. Price ceilings and floors help to add certainty for companies and consumers, and may allow governments to release less emissions to reduce emissions faster, provided the price stays within the target range. Permits may be auctioned in some models.
Notes[edit | edit source]
- http://www.businessspectator.com.au/bs.nsf/Article/climate-emissions-trading-carbon-tax-Australian-go-pd20120307-S62KP, Tony Wood, Energy Program Director at the Grattan Institute. Commentary in the Business Spectator, 7 Mar 2012.