Readers Question: “the only viable solution to the problem of global warming is an international agreement that sets a ceiling to the world’s production of carbon emissions, by allocating a quota to each country. The sum of the quotas being set equal to the agreed global maximum. countries should then be permitted to buy and sell their quotas”
In theory this scheme can provide a market-based response to the problem of global warming.
- It would require countries to agree on a global maximum of carbon emissions. This level would presumably be less than current and would provide the necessary target to reduce emissions and help prevent global warming.
If countries are given a quota, they would have an incentive to reduce carbon emissions. If they can pollute less than their quota they will be able to sell their quotas to other countries; if they pollute more then they will have the cost of buying more quotas.
- This fiscal incentive should encourage the development of technology which leads to more efficient engines and reduces carbon emissions.
- In theory, it is also socially efficient. i.e. a firm can pollute more if it feels it is worth the cost of buying more carbon permits.
Problems of Carbon Trading Emission Schemes
- How To Agree on Global Maximum? This would be difficult, as most countries would be reluctant to forsake growth in return for lower global emissions.
- How to distribute quotas amongst countries. Should the quotas be related to the size of population? or should they be related to existing output? If it is related to existing output, many large countries with low GDP per Capita, like India, would get a relatively small amount of quotas. Some countries like China are growing very fast so would be wanting their quota to keep increasing.
- Administration Costs of checking out carbon emissions.
- Scope for falsifying statistics on carbon emissions. It might be possible for countries to emit more carbon than they admit.
- How can the scheme be enforced? If China exceeded its quota what could we do?
There are many difficulties, but in theory, it could help to provide a market based solution, with incentives for reducing pollution