Effectiveness of Emissions Trading in Reducing Global Warming – counterarguments

Despite the benefits provided by emissions trading, some of its features may still lead to its lack of effect in bringing significant reduction in emissions. First of these is that emissions trading may actually be a rearrangement of pollution thus not having an overall effect of lowering global warming (Jaffe & Stavins 2007). Since organizations with higher emissions level can purchase permits to meet their level of emissions, emissions trading could prove a deterrent to pollution reduction where organizations find the marginal costs of reducing emissions being higher than the purchase price of additional permits (Stavins 2001; Jaffe & Stavins 2007). Such a system could prove controversial and unethical when viewed as a trade of pollution with country differences in level of industrialization placing the underdeveloped countries at a disadvantage (Jaffe & Stavins 2007). Aspects such as political barriers and high start-up costs for establishing a comprehensive emissions trading system may further curtail the degree to which emissions trading becomes adopted by various countries thus adversely impact on its effectiveness in reducing global warming (Jaffe & Stavins 2007; Ellerman & Joskow 2008).

Emissions trading offers a potential for encouraging investment in pollution reducing innovations. This paper purposed to evaluate whether emissions trading is a prudent approach for reducing global warming. Despite its possible effect of rearranging the levels of emissions among various organizations and countries, the approach provides incentives for firms to pursue emissions reducing strategy. A main incentive for this is the quantification of pollution by placing a price on the permits thus making emission part of the internal costs of doing business. By such a way organizations would be motivated to develop solutions that lead to cost efficiency in terms of emissions and possibly earn additional profits by selling their surpluses. In the long-term most firms would move towards cost efficiency and by lowering the overall allowable limits a significant reduction in global warming could be achieved in the long run.

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