Merits and demerits of tradable permit systems Sample Clauses

Merits and demerits of tradable permit systems. Tradable permit systems may, depending on their design, have a variety of advantages. First, they are potentially economically efficient, in that they can in principle achieve environmental protection while ensuring that allowances end up with those who value them most. Participants can choose whether or not it is cost-effective for them to achieve lower emissions than the quantity of allowances allocated (and sell the excess), and they can make their choice on their own terms (i.e., they can choose the timing of pollution, and where improvements should be made, themselves). As such, they represent a “least-cost” solution to achieving environmental aims: those who can improve their environmental performance at the least cost will do so. In economists’ terms, this means that overall pollution abatement costs decrease.80 Second, as with most economic instruments, tradable permits thus provide incentives to improve environmental performance, while offering the possibility of offsetting investment costs in new technology and potentially providing firms which do so with a competitive advantage. As such, the schemes turn the “burden” of reducing pollution into an opportunity to gain a market advantage, thus increasing overall environmental benefits compared to traditional command and control techniques.81 Realisation of these benefits, however, is contingent on the correct set-up and smooth functioning of the market. Thus, tradable permit systems work best where: there are in fact different options for firms, such that it is open to them to choose which one is most cost- effective for them; where the environmentally beneficial outcome can be accurately measured and is binding (something which is easier to achieve with “cap-and-trade” rather than relative target schemes); where the number of participants is relatively high and varied (i.e., the market is fairly liquid), so that comparative cost advantages can be realised; in “cap- and-trade” schemes, where the cap is set at a level which will in fact achieve environmental protection; where allocation of allowances is done accurately, so as to remain within the limit of the cap; and where accurate verification and monitoring of emissions is possible (i.e., the gases being traded must be susceptible to accurate measurement, and suitable, trustworthy bodies must be entrusted with the task). Even if these requirements are satisfied, certain problems remain with use of a tradable permit system. Some, such as ethical a...