Economics-Case Study; Energy/Climate Change/Cap and Trade Policy - Essay Example

Of these three major options, economists prefer the use of cap and trade or emissions trading system. On the other hand, governments prefer regulation and subsidies to control gas emissions. Note that regulations through taxes are easier for governments to implement and monitor. Giving subsidies to organizations and establishments that use renewable energies is more appealing. Following the recent global economic debacle where many governments use taxpayers’ money to stimulate the economy, giving incentives and subsidies to green technology has become easier.

Although use of taxes and subsidies may work on a short term basis, it may not be the most sustainable means to lower gas emissions. We have to understand that the resources of the government are finite so giving subsidy may not be a appealing in the long run. Besides, government regulations interfere in the natural flow of the market. If the market is working well, then there is minimal need for government interventions. Thus, instead of using government regulations and subsidies, it would be better to use the cap and trade system and let the market forces go its natural course.

The cap and trade system has been used by some countries in Europe. This system was also adopted by the Kyoto Convention on Climate Change. Note that the Kyoto Protocol was signed by a number of developed nations in 1997. The protocol which took effect last 2005 binds these nations to a cap-and-trade-system to reduce emission of 6 major greenhouse gases (see UNFCCC website http://unfccc.int/kyoto_protocol/items/2830.php). As provided for under the treaty, within the compliance period from 2008 to 2012, countries that emit greenhouse gases below their limit are entitled to sell their emissions credits to countries that exceeded their allowable emission.

The trading scheme also allows developed countries to earn tradable emission credits by sponsoring carbon projects to reduce the greenhouse gas emissions of