Sunday, September 30, 2007

Leaders Weigh Emissions Fund

In a recent article published in the WSJ, leaders of developing and developed countries, met to discuss ways to lower emissions and reduce global warming. The Bush Administration believes that technology improvements would be the fastest way to lower carbon emissions yet at the same time it would expand U.S. equipment sales. The most important agenda is a plan to help fund developing nations with investments for upgrades in energy facilities. China is very interesting in gainingmosr funding as it will become the largest carbon emittor because of its coal power plants. Some at the conference believe that cap and trade emissions reduction program are the key to promoting more investments.

Cap-and-Trade Systems: How It Works
As stated by, "cap and trade systems draw on the power of the marketplace to reduce emissions in a cost-effective and flexible manner. In practice, cap-and-trade systems create a financial incentive for emission reductions by assigning a cost to polluting. First, an environmental regulator establishes a “cap” that limits emissions from a designated group of polluters, such as power plants, to a level lower than their current emissions. The emissions allowed under the new cap are then divided up into individual permits—usually equal to one ton of pollution—that represent the right to emit that amount."

"Because the emissions cap restricts the amount of pollution allowed, permits that give a company the right to pollute take on financial value. Companies are free to buy and sell permits in order to continue operating in the most profitable manner available to them. So, those that are able to reduce emissions at a low cost can sell their extra permits to companies facing high costs (which will generally prefer to buy permits rather than make costly reductions themselves)."

"A key advantage of a cap-and-trade system compared with other emission reduction strategies is that it gives companies flexibility in the manner in which they may achieve their emission targets. Another advantage is that it sets a clear limit on emissions. Traditional approaches often focus on emission rates or require the best available technology, but do not always require that specific environmental goals be met."

Apparently, intergrating incentives into policies can be an effective way to encourage a correct practice. Instead of trying combat or correct an established or encouraged and damaging practice, policies like the cap-and-trade system can encourage and reward for the correct or "right" behavior by an organization. At the same time, the organization may be able to establish lower operating costs by adopting new policies that align themselves with these rewarding environmental policies.

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