If they are well designed, tradable permit schemes allow lower GHG emissions with increased flexibility and hence reduced costs compared to traditional command and control measures. On the other hand, auction sales of permits may be counterproductive because emitters can pass the cost on to consumers.

Cap and trade reduces emissions, such as those from power plants, by setting a limit on pollution and creating a market. It’s a system designed to reduce pollution in our atmosphere. The cap on greenhouse gas emissions that drive global warming is a firm limit on pollution. The cap gets stricter over time.

Cap and trade systems and command and control regulation both involve the limiting of emissions in polluting sectors of the economy. However, cap-and-trade provides economic incentives for private sector actors to engage in mitigation, thereby making it the most efficient method of achieving an environmental target.

Critics of cap-and-trade point to problems that actual cap-and-trade programs like the European Union Emissions Trading Schedule and the Regional Greenhouse Gas Initiative have confronted, such as weak emissions caps, volatility in emissions allowance prices, and overly generous allocations of emissions allowances to …

List of the Pros of Cap and Trade

• It creates a specific total cap that is then split into allowances.
• The trading process can lead to faster cuts in pollution.
• Cap and trade encourages aggressive climate change goals.
• Government revenues increase with cap and trade.
• Agencies can purchase credits to retire them.

Cap-and-trade has been used successfully in the U.S. to reduce emissions of sulphur dioxide and nitrous oxide, two key ingredients responsible for acid rain. Since the early 1980s, this cap-and-trade system has reduced acid rain-forming emissions by nearly half, which has led to a healthier environment.

A carbon tax directly establishes a price on greenhouse gas emissions—so companies are charged a dollar amount for every ton of emissions they produce—whereas a cap-and-trade program issues a set number of emissions “allowances” each year.

Research shows that carbon taxes effectively reduce greenhouse gas emissions. Most economists assert that carbon taxes are the most efficient and effective way to curb climate change, with the least adverse economic effects.

Results from two recent analyses suggest that implementing a carbon tax has no discernible detrimental effects on employment and GDP growth.

The Congressional Budget Office estimates that with a tax of $25 per metric ton of CO2, emissions would be 11% lower in 2028 than currently projected. In that same timeframe, this tax would also generate an estimated $1 trillion.

The tax reduces emissions in two ways. First, increasing the cost of carbon-based fuels will motivate companies to switch to clean energy. These include solar energy, wind energy, and hydro-powered sources. The carbon tax will also increase the price of gasoline and electricity.

Under a carbon tax, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit. Businesses and consumers will take steps, such as switching fuels or adopting new technologies, to reduce their emissions to avoid paying the tax.

According to economists, an effective carbon price must be high enough to make polluters pay for the externalities they generate. It must also cover all economy-wide sources of carbon pollution. Carbon prices now exist in 46 countries, covering about 22 percent of the carbon pollution that humans release each year.

The tax calculated on the basis of carbon emission from industry, number of employee hour and turnover of the factory is called carbon tax. This tax shall be paid by industries. This will encourage the industries to use the energy efficient techniques.