Economics of carbon cap and trade - Essay Example

al Protection Agency (EPA) is charged with responsibility of providing the federal and the central government with adequate information on the level of emissions as well as the greatest contributors towards such emissions. Some of the enactments include carbon tax, emission standards, fuel economy standard as well as carbon cap and trade (Ramseur, 205). Carbon cap and trade refers to a system of emission control that uses financial incentives with an aim of encouraging firms and organizations to minimize the level of carbon dioxide that they emit to the atmosphere.

A major regulatory body such as the United States Environmental Protection Agency (EPA) sets a general limit or a cap of carbon dioxide emissions in a particular year then assigns the figure to the major polluters based on the level that they are likely to emit. The firms that wish to emit more than their cap allows will be forced to buy permits from those firms that are currently emitting less than they are allowed to emit into the atmosphere. The permits are either bought directly from the companies or are bought and sold through electronic exchanges.

This program has proved successful in the European Union countries resulting in huge revenues being raised by those governments thus boosting their economies as well as regulating the amount of carbon emissions. However in the United States, only few states have been able to implement it and the main concern being raised currently is whether the central government can adopt and implement it in the entire nation. The regulation has brought about sharp criticism from some members of the political class even as some seem to be in support of it.

There are several implications that must be considered carefully before the program is established and therefore this research aims at considering the economic implications of the project. Economic conditions entail the manner by which implementation of carbon cap and trade policy will affect the economy in