Control Formula Permit For Free

Consequently, tradable pollution permits can be a cost effective way to achieve a reduction in overall pollution. The freedom to trade pollution entitlements gives an incentive for polluters to consider abatement (since they can sell their surplus quotas) while others face the cost of having to purchase permits.

So far, with one exception, tradable permits have not been a favored policy tool for pollution control. The exception is the United Statesthe first country to give tradable permits a prominent place in environmental protection programs. Most of the permits are used in the control of air pollutant emissions.

Tradable permits also raise firms' production costs and reduce economic activity. If a polluting firm increases production, it must either buy permits to cover the extra emissions or forgo sales of its own permits to other firms; either way, there is a financial penalty for producing polluting output.

The concept of using a permit market to control pollution levels was first developed by Canadian economist John Dales and American economist Thomas Crocker in the 1960s. Through this method, pollution permits are issued to firms in an industry where a reduction in emissions is desired.

Disadvantages of tradable pollution permits The ETS may release too many carbon emissions. This will not help to reduce pollution levels. The ETS or governments may provide too little carbon emissions to firms making them uncompetitive due to a significant increase in their cost of production.

Tradable pollution permits are so-called cap and trade schemes. They give companies a legal right to pollute a certain amount per fixed time span. Firms that pollute less can then sell their leftover pollution permits to firms that pollute more.

Pollution permits involve giving firms a legal right to pollute a certain amount e.g. 100 units of Carbon Dioxide per year. If the firm produces less pollution it can sell its pollution permits to other firms. However, if it produces more pollution it has to buy permits from other firms or the government.