Carbon trading or license to pollute?

Carbon trading means permitting an industry to emit certain amount of smoke and if it does so less it is allowed to sale the permissibility of the rest amount of emissions to any other industry on a price as quoted by the buyer which means this transaction takes place in a carbon trading exchange.  An exchange is market mechanism where already sold products are resold on agreed price. It is also called emissions trading which was adopted by industrialized nations after Kyoto protocol - an international agreement binding the developed nations to reduce their carbon emissions by 5.2% till 2012.

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First flaw in carbon trading

Green activists view this system of adjusting with the nasty act of polluting critically because it is equal to allowing one to pollute to a certain level and if it does not do so it can sell this right to pollute to someone else who wants to pollute beyond its limit. Their main argument against this system is that you can not play havoc with the environment by allocating a quota to pollute. In their stance they are very right because such practices will ultimately hit the environment either quota is fully utilized or sold to someone in need of it.  

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Purpose of carbon trading

The carbon trading actually addresses the issue of greenhouse gases emissions which not only pollute the environment but also cause ozone depletion and eventually brings on acid rains in future directly affecting the life and environment both. Greenhouse gases comprises of carbon dioxide, methane, nitrous oxide and sulphur hexafluoride which are emitted by industries and vehicles.

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Second flaw in carbon trading

The second flaw of carbon trading system is that the permission to an industrial unit for emitting a certain amount of carbon is granted on the basis of its previous level of such emissions like total amount of emissions it made in the last year. It is feared that to get the permission of same amount of emissions every industry might be trying to emit the same or even higher amount of smoke just to maintain the level of its permission to pollute. Its sound so strange but economists are of the view that emission of carbon is an externality which you can’t stop below a certain level and for this purpose you have to stop the entire industrial process. Therefore, to adopt a balance way every industry is allowed to emit to a specified level.

Emissions trading exchange

The auto-built aspect of this rational approach of limiting the emissions is that it created a vibrant market of emissions trading where buyer and sellers actively trade their residual permission level to each other on price fixed by demand and supply. The initiators of this system wouldn’t had the idea of the development of this market to such an advance level. But this market is expanding in all those industrialized countries which solemnly promised to reduce their emissions level in Kyoto protocol held in Japan in 1997. Almost all the industrialized countries except US are its signatories.

Conclusion

It is widely believed that this system was developed just to rationalize the pollution mitigation measures by taking the stakeholders on board while applying this mechanism. However, the craze of industries to produce more and more without taking care of environment has helped develop an emissions trading exchange in industrialized world which warns the green policy makers to think several time in future before taking some other such rationalized measures.

How do you think about the act of granting license to pollute to industries. I would love to read your comments below.