Emissions Trading – A Brief Overview

Economist Philip H. Brown focuses the majority of his work in the areas of health, education, poverty, inequality, and the environment. As a developmental economist interested in the environment, Philip H. Brown examines the effects of various environmental policy instruments, including emissions trading.

Emissions trading, a market-based tool for managing greenhouse gas emissions, puts a price on air pollution and provides economic incentives for companies that work to reduce it. Under the most common type of emissions trading plan, a government agency or other organization sets a cap on allowable emissions and then allocates emissions permits that total the cap.

Participating companies that lack sufficient permits to cover their emissions must either work to reduce them or purchase additional permits from a company that has more credits than it needs. This type of system rewards efficiency and creates an incentive for companies to reduce their emissions, with the bonus of cutting operations costs and profiting from selling surplus permits to other participating entities.

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Author: Philip H. Brown

Economist

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