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Ecnomonic Policies

Essay by   •  August 21, 2011  •  Essay  •  608 Words (3 Pages)  •  1,471 Views

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Sometimes a company does things that have external affects, and these affects may or may not be good. In this case, the company was producing emissions and particulates that were causing negative impact in the community. There are a few policies that can be enforced in order to keep these issues under control. Two policies to that could be used are Taxes and cap and trade.

An emissions tax is a policy created by the government that sets an amount of money that a company has to pay for every unit of pollution it produces. This would be affective because if a company that creates a lot of pollution on a regular basis has to pay for all that pollution, they will probably try to reduce the amount of emissions they put out. Ideally, a company would spend the same for the tax as the social cost per unit of pollution (ThinkQuest, 1999). If a company cannot afford to pay the tax, they will also be forced to reduce their amount of emissions released. In other words, it would be in a company's best interest to maintain a low pollution level so they can save money.

Another policy that would be affective would be Cap and Trade. Cap and Trade is policy that provides a mandatory limit on emissions while offering several different routes for companies to comply with the rules. Caps and trade that are successful tend to reward compliant companies that show innovation, efficiency and preventative actions and display strict accountability for the environment.

There are some benefits of the tax policy, besides reducing emissions. One advantage would be giving companies the opportunity to be involved in the community in a positive way. Taxes would also provide an income for the government. Cap and Trade would be another source of revenue for some companies because they can sell their permits to other companies that can't afford to efficiently reduce their pollution levels to allow for more pollution allowance. The company that is selling the permits is usually rewarded, but those purchasing the permits are left to pay for their higher levels of pollution.

It is difficult to know exactly how much pollution will be made because some companies will have to produce more than others, and with the companies having the ability to buy and sell permits, it would be difficult to know which companies are polluting and how much. So if the government sets a tax price for certain amounts of pollution, a heavy pollution producing company will have to pay more money for more pollution produced.

As for Cap and Trade systems, a company would have to pay whatever the price was for the pollution permit. If they can afford to operate without using the permit, and sell it, they can make a small profit from another company. So, whatever the price is for a permit is what Cap and Trade would cost a company.

It is hard to determine the best level of emission reduction. We would have to know the demand for pollution

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