Capand-trade systems can reduce emissions from "summary" of Economics of the Environment by Robert N. Stavins
Cap-and-trade systems offer a market-based approach to addressing environmental issues, such as reducing emissions. By setting a cap on total emissions and allowing firms to trade permits to emit pollutants, these systems create a financial incentive for companies to reduce their emissions. This can lead to a more cost-effective way of achieving emissions reductions compared to traditional regulatory approaches. The flexibility of cap-and-trade systems allows firms to find the most efficient ways to reduce their emissions. Companies that can reduce their emissions at a lower cost than their allocated permits can sell their excess permits to those facing higher costs. This trading mechanism encourages innovation and the adoption of cleaner technologies, ultimately leading to overall emissions reductions. Additionally, cap-and-trade systems provide certainty in achieving emissions targets. By setting a cap on total emissions, regulators can ensure that the desired level of reductions will be achieved. This differs from traditional regulatory approaches, which may not guarantee specific emissions reductions due to uncertainties in compliance and enforcement. Furthermore, cap-and-trade systems can promote international cooperation on environmental issues. By allowing firms to trade permits across borders, these systems can help countries work together to achieve global emissions reduction goals. This can be particularly important for addressing climate change, which requires coordinated efforts on a global scale.- Cap-and-trade systems have proven to be effective in reducing emissions by harnessing market forces to incentivize pollution reductions. By providing flexibility, certainty, and promoting international cooperation, these systems offer a promising approach to addressing environmental challenges in a cost-effective and efficient manner.
