Essays on Advantages and Disadvantages of Emission Trading Schemes, Market Approach vs Traditional Regulation Assignment

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The paper “ Advantages and Disadvantages of Emission Trading Schemes, Market Approach vs Traditional Regulation ” is an informative variant of the assignment on macro & microeconomics. In the contemporary world, global warming is the biggest challenge of our time. Glaciers continue to melt, ocean levels are rising, and unpredictable weather leading to dry spells and heavy flooding are among the negative impacts of global warming. Industries are not left behind either as the calls for industrial emission reduction are all over. The effects of environmental pollution threaten the existence of industries.

This essay aims to briefly explore the effectiveness of Emission Trading Schemes as an approach to reduce emissions significantly in the end. Emission Trading SchemesThe emission trading schemes are an alternative market approach from the traditional approach that aims at meeting the target of the Kyoto protocol in cutting greenhouse gases emission into the atmosphere (Grubb, M. et al. , 2009, Climate strategies). Everybody loses while the custodianship of the environment fails. Although the production output stands to rise, the losses that result outweigh these benefits. ETS came to effect in 2005 in many of the European Union nations responsible of over half of the total emission of carbon dioxide, immediately the Kyoto protocol came into force.

The scheme integrates flexibility and innovation, a shift from the traditional regulatory approaches in private sectors. The companies in the private sectors use the common price signal to know where the emissions and abatement is highest. Source: International Institute for Sustainable Development, An illustration of how ETS aim to combat emissions. In reduction of carbon emission, ETS sets the target of carbon reduction emission to a specific company.

The trading happens when the private companies meet the set target and reduces the emissions measured through Emissions Reduction Units – usually; one unit is equivalent to one tonne of carbon dioxide (Gilbertson and Reyes, 2009). The companies receive allowances for the units gained during a trading period and therefore they can sell them to those industries that are unable to meet the target of emissions reduction. The industries unable to reduce emissions owing to the high opportunity costs are compelled to buy allowances.


Gilbertson, T. and Reyes, O (2009) Carbon trading: how it works and why it fails Uppsala: Dag Hammerskjold Foundation

“Europe Forcing Airlines to Buy Emissions Permits” The New York Times, October 24, 2008

Pohlmann (2009) The European Union Emissions Trading Scheme: Legal Aspects of Carbon Trading Ed. Freestone

Warren Bell. (March 14, 2003) “Introduction to Domestic Emission Trading” International institute for sustainable development Retrieved 2010-06-01.

Grubb, M. et al. (3 August 2009). "Climate Policy and Industrial Competitiveness: Ten Insights from Europe on the EU Emissions Trading System" Climate Strategies Retrieved 2010-06-01<>

David B. Ashby (1979 – 2009) Wholly Macro! Second edition London: Routledge

David E. W. Laidler. Macroeconomics in retrospect: the selected essays of David Laidler New York: Edward Elgar Publishing, 2004, 433 pages

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