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Pure, Per Se and Natural Monopolies

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I believe that the two policies that would reduce the total amount of emissions would be the cap and trade policy and the taxing policy. Below I have explained why I think each of the policies would work, what the benefits would be, and the cost of each action.

Cap and Trade Policy: Under cap and trade the government creates emission permits which are also called allowances. Each permit allows the permit holder to emit a certain amount of gases. Example would be if the power plant would need to emit 1000 tons of gases, it would need 1000 emission permits. Once the government has set these caps and created the sufficient permits it could also determine how to allocate them to polluters that are covered by the system. The way they can do this is based on current or historical emissions output which would be free allocation. The other options would be to allow companies to buy the permits from the government in an auction. In this scenario the least expensive it is to reduce its emissions the less it will be willing to pay for permits. Either way, the total number of permits allocated (the cap) is would be the same. This policy would work because you would only allow so many permits and at the same time you would cap the number of permits. This action would control gas emissions by the companies who are not in compliance with government pollution laws and regulations as well.

Carbon Taxing Policy: The taxing policy is typically what it says. It offers certainty about the price of carbon. Governments may adjust tax rates frequently reducing the price certainty. Polluters would pay as long as the tax level is appropriate and tax exemptions and reductions are not offered. A common tax rate would provide a single marginal price for emission reductions, which would maximize economic efficiency. A carbon tax could also allow for the purchase of offset credits as a way to reduce taxable emissions and to make sure that some money is redirected to immediate emission reductions. Also a plus would be that a common tax rate on would provide a single marginal price for emission reductions which would maximize economic efficiency.



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