A energy and curb the excessive use of

A vast array of the
population is concerned about the impacts of global warming which is slowly on
the rise. Earlier, the emissions of gases from industries were “free” of cost
but organizations firmly believe that in the future, they will no longer be
free. Whether its decided this year or in the next few years, a price being
imposed on the gases being emitted is certain.


Any regulation imposing a
price on the emission of carbon must foster the development of renewable
sources of energy and curb the excessive use of fossil fuels. There are two
widely recognized strategies for this purpose. The first approach, known as the
market-based approach, is considered as an attractive alternative to the latter.
It specifies the amount of emissions an industry is permitted to emit and what
measures it must undertake to meet these requirements (Guidelines for preparing
economic analyses, 2010).  Companies must
obtain a permit to cover each unit of pollution they produce which can be done
by trading with other companies, auction or allocation (Taschini, Dietz, &
Hicks, 2013). The second, traditional system, is the command and control
approach which requires organizations to take specific actions to reduce
emissions by meeting a certain standard of emission or making use of a particular
technology (Ye, 2015).

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There is an overarching
debate between these approaches and several environmentalists and economists
still cannot decide which one is better. Even though both have the same
objective of CO2 abatement, the cap-and-trade approach is slightly better.


 The main aim of market-based approach is to
eliminate or reduce pollutions. Each section of regulatory business
autonomously chooses and decides how to achieve the optimal pollution levels
required in a cost-effective manner over a compliance period. It will be easier
for some firms to reduce more emission levels at a cheaper rate compared to
other companies because of the standard use of their equipments. This approach
offers financial assistance to all those firms who willingly accept the
responsibility for their own emissions (Ye, 2015).

 In comparison, the command-and-control
approach determines how much emission an industry is allowed to emit. This
method is a back-up option when all other methods fail.  Just because it is determined in terms of
emissions rate, it doesn’t control the overall emission levels. As the
production of emission increases, so will the total emissions. The political authorities
simply instruct the behavior and use any measures to enforce the people to
abide by the rules. It has been largely criticized for being inflexible (Field
& Olewiler, 1985). An example of this approach is ‘carbon taxes’.

The Market-based approach
has been widely used and accepted by many policymakers to challenge
environmental issues in the US. (Gayer & Horowitz, 2005). There are several
mechanisms to this type of approach including the subsidies and cap and trade.
The cap-and-trade strategy is the most common where a ‘cap’ or a limit is set
to minimize the overall carbon levels from industries and the limit value is
reduced each year to achieve definite pollution targets (David Suzuki
Foundation, 2017).


This system is advantageous
because by setting a cap that declines over time, it ensures the certainty of
emission levels falling below the pre-set targets but not the costs (Kaufman,
2016). This approach has a comparative advantage over command and control
method in two ways:  growth of technology
and innovation and cost-effective solutions. This will be accepted by more
number of people because of the increasing benefits at reduced costs. The
companies prefer selling their resources rather than purchasing it. This is due
to the “tragedy of the commons” which states that if people continue using valuable
resources in an unlimited fashion without any restrictions, it is bound to be
exhausted by the people who want to share its worth as there’s no control over
gaining benefits easily at a low cost. Thus, financial incentives are
integrated with environmental issues. Firms are paid a higher incentive if they
curb emission levels by adopting a low-cost technology. Its flexible nature
motivates organizations to achieve their targets. Moreover, it allows the firms
to balance abatement costs at the margin, thus meeting the fixed standard of
environmental quality at reduced costs (Zhang, 2013).

In contrast, enforcing the
command and control approach is relatively simple. It avoids the fact that
carbon emissions may vary according to the technology quality, and other
factors across industries. The process of setting uniform standards for all
industries will be expensive and unsuitable. Furthermore, its inflexible nature
limits the companies to suggest alternative carbon emission sources (Zhang,


However, carbon taxes do not
guarantee the accomplishment of the emission targets. It somehow only provides
certainty regarding the costs and not regarding the emission levels. Several
policymakers strongly suggest the attainment of less-severe targets compared to
cap and trade approach which is why it is opposed by many NGOs. Political
forces on the cap and trade system will lead to various allocation of
allowances which does not impact cost-effectiveness and environmental
effectiveness. The tax enables firms to guess how much it costs to reduce emissions,
but a declining cap system decides who gets to pollute and how much.


The cap-and-trade approach
is used in ten states in the US and the European Union whereas there is very
little focus on the tax system. Some policymakers claim that a tax would be simpler,
but it is not easy to write tax bills. This approach focuses on how much tax
should be kept rather than the methods that can be undertaken to quickly reduce
carbon levels.

The global warming crisis
needs to be addressed immediately and one can’t simply wait for years to
implement new ways to solve this problem by putting ‘taxes’ which will take the
firms some time to get used to. The market-based approach can prune compliance
costs and can also avoid adverse climatic conditions. Hence, in moving towards
a low carbon economy, the method of a declining cap or market-based approach is
the right way to achieve our targets.