Analysis
In 2005, European Union Emission Trading System was implemented. It is a cap and trade system that lead to 40% decrease in emissions since implementation.
Evaluation
Assumption
- Companies will respond according to financial incentives
- Governing bodies can correctly monitor (it takes significant resources to monitor actually)
Pros
- Targets specific levels of carbon dioxide emitted, providing a clear goal for companies to work towards.
- Provides an incentive for innovation, encouraging companies to move away from carbon-emitting production methods.
Cons
- Political pressure leads to unequal distribution of permits (manipulation)
- Relocation of companies into places that there is less regulation
- Requires resources to enforce.
- Volatile prices, such as those experienced in the Great recession, hinders long term planning.