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POLICY ON EMISSION REDUCTION AND EXTERNALITIES

Emissions are generally made by local power plants in form of waste products most particularly the particulates and gasses such as carbon dioxide (CO2). Tucker (2011) explains that these released emissions to the earth’s atmosphere have been proved to be of risky and catastrophic damages to the climate. This has therefore opted for the need of developing a policy to curb and eliminate such effects. According to Tucker (2011), the policy that is generally favored by economists and that can be used in total emissions reduction is the Incentive Based Policy (IBP). The Congressional Budget Office’s microeconomic studies by Terry Dinan also support the IBP.

The policy will and is capable to reduce total emissions since it provides the plants with economic incentives which are of huge benefits for the emission reductions. The incentives are always provided in the actions and ways such as the following. Establish a cap on the total emission amount, emission tax, setting of ceiling on emission amount, permitting plants to transfer the requirements for emission-reduction across time and providing for tradable allowances of emissions. The incentive based policy also provides for modified trade and cap programs with the features of meeting the emission cap efforts.

The benefit of the policy actions is that it is able to ensure for the reduction of plants’ emissions at lower costs. If compared with the control-and-command policy which is more restrictive and expensive. For example, in the action of under tax incentive based policy. A policymaker would impose a levy fee for each ton of emission like CO2 gases (National Research Council, U.S., 2013). The tax would therefore motivate the local plants to cut back on their total amount of emissions if cost of so doing is considered to be less than the tax-paying cost. The tax therefore as a result creates the benefit of placing an upper limit in reducing the cost s of emissions. Moreover, in the action of trade-and-cap program of the incentive based policy. The policymakers set a limit on the accepted amount of total emissions during some specified periods. This will require the regulating local plants to hold allowances and rights in relation to the permitted emissions amount under the set cap.

The cost of each of the actions in the incentive based policy of reducing emissions exists but with uncertainties however. For instance, in the action of setting a cap on total emissions amount, there exists a potential variability in the costs as at different points in certain time periods. The action of the tax on emission keeps the emissions reduction cost to be in a balance with the benefits which are anticipated. However, in the action of trade-and-cap program policy, which is being used in United States and the European Union to reduce emissions causing acid rain and limit the emissions of CO2 respectively. The action has been accompanied with huge costs in the economy but the returns have consequently been of significant interests as explained by Loren (2012).

The best level of emission reductions is decided and determined under the following situations. When there is efficiency in the maintenance of a balance between the costs and benefits which are uncertain in the process of emission reductions (Tucker, 2011). Also, the best level of emission reduction occurs when there is ease in implementation of the emission reduction policy without excessive administrative costs, as potted by National Research Council, U.S. (2013). Finally, when there are possible interactions with the policies of other countries used for curbing the emissions. This means that the policies used in the emission reduction like the incentive based policy as explained in this research paper. For instance, must ensure that the U.S policies and foreign policies do produce incentives which are similar to cut emissions both outside and inside the American United States.

The government policies on competition are entailed in the flexible cap policies as argued by Loren (2012). The policies help to keep costs from climbing too high or falling too low. The prices are kept from falling in a government competitive market by using a safety valve program. The safety valve prevents emission reduction costs from exceeding either the acceptable cost by policymakers or the best available benefit estimate. The policymakers help in preventing the costs in a competitive market from falling too low by setting price floors. In this case the government may make a choice of selling a significant allowance portion by auction or it can specify the price of reserve and therefore withhold the allowances from auction. This is usually done by the government in order to ensure that the competitive price is hedged and maintained.

REFERENCES

National Research Council (U.S.)., In Merrill, S. A., In Nordhaus, W. D., In Beaton, P. T., & National Research Council (U.S.). (2013). Effects of U.S. tax policy on greenhouse gas emissions.

Tucker, I. B. (2011). Economics for today. Mason, OH: South-Western Cengage Learning.

Loren, R.C. (2012). The failures of American and European Climate Policy: International Norms, Domestic Policies, and Unachievable commitments. Suny Press.