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The Cap-and-Trade Regulation Laws Essay

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Updated: Apr 24th, 2020


In every country, it is necessary to have appropriate policies governing the conduct of the production activities because people share same environment. It is therefore necessary to consider the contribution of production activities from all dimensions. This study involves the cap-and-trade system which is aimed at promoting environmental well being as well as promoting economic activities. From this discussion, the cap-and –trade system has significant economic benefits compared with the top-down regulation.

Under the cap-and-trade regulation, the regulation is determined by the market. It is therefore characterized by a high level of efficiency. On the other hand, the top-down system is characterized by dictatorship from the regulators hence encouraging bureaucracy in the operations. This makes the decision making process to become more complex.


Over the recent past, the issue of pollution has raised great concerns as the level of pollution continues to rise. Several strategies have been applied in an effort to find the lasting solution. The cap and trade regulation is one of the main strategies which are targeted at achieving these benefits. However, these restrictions raise some economic issues on whether the restriction will have any economic benefits. For instance, carbon emissions are as a result of production activities, which significantly contribute to economic growth.

On the other hand, environmental activists will argue that such emissions are dangerous on the environment. In other words, there is need to consider the opportunity cost of each course of action. It is always necessary to estimate which course of action will contribute more economically.

With the cap-and –trade system, the market is the one which automatically decides on where and when to cut emissions (Schoenbrod & Stewart, 2009). This is more efficient because the market operations control the level of emissions freely. In addition, in this method, the regulators cannot be able to dictate on the rules and therefore eliminates bureaucracy. It also promotes the speed of decision making. Since this system is market controlled, it is more likely to promote economic growth.

Despite of these achievements associated with cap-and –trade system, it suffers from some shortcomings. For instance, this allocation may prove insufficient in case of the market failure. In the market, the economic allocation in certain situations may prove insufficient. In such a case, some of the people may suffer at the expense of others. In other words, the market allocates insufficiently in case of the market failure (Paltsev et al. 2007). In such a situation, all the people will not be satisfied with the allocation.

On the other hand, the top-down regulation is characterized by a high level of dictatorship where the people responsible with implementation of these rules dictates to the companies on how to fall these rules. This system is therefore inefficient in terms of economic considerations as it slows efficiency (Adamson 2008). This method also encourages bureaucracy as well as the red tape. As a result, many companies have been obstructed in effective decision making. In most cases, the top down-system comes in various forms.

For instance, it provides automakers and electric utilities receive free allowances when they comply with certain specifications (Schoenbrod & Stewart, 2009). In order to receive these allowances, there must be compliance with certain specifications.

For instance, companies are required to comply with the specifications requiring them to adopt energy conservation measures, advanced auto technology which is environmental friendly and use of alternative energy sources. All these measures are aimed at reducing the level of pollution or carbon emissions from production activities.

According to Schoenbrod & Stewart (2009), many people have been supporting the American Clean Energy and Security Act 2009 which is also referred to as Waxman-Markey bill. Some have been arguing that this bill acts just like the cap-and-trade. Waxman-Markey contains both aspects of the top-down and cap-trade regulations. However, this system is more inclined towards the top-down regulation (Gordon 2010).

According to this system, the U.S. is not required to reduce its fossil fuel emissions until the year 2025 (Schoenbrod & Stewart, 2009). However, this poses a greater danger because of the externalities associated with such actions. For instance, such emissions will be a cost in terms of the people living around who will inhale such emissions. The cost will come in terms of the expenses incurred through treatment of such diseases.

The productivity of the affected and infected people may also be affected negatively. According to Schoenbrod & Stewart (2009), it was estimated that the emissions will cost the people in the bottom income approximately 3.3 per cent of their disposable income in every year. Although such emissions will be as a result of production, the economic contribution of such activities may not be reasonably effective.

In conclusion, this discussion has clearly shown that the proposed Cap and Trade Legislation is better than the top-down regulation. Under the cap-and-trade system, the operations aimed at regulation of omissions are better because its market controlled. Therefore, this process eliminates the chances of emergence of bureaucracy. It is less dictating and therefore hinders the decision making process in many companies.

Reference List

Adamson, J. (2008). Law for Business and Personal Use. Mason, OH: Cengage Learning.

Gordon, R. (2010).The Bait-and-Switch on Cap-and-Trade. Web.

Paltsev, et al. (2007). Assessment of U.S. Cap-and-Trade Proposals. Global Science Policy Change; Report No. 146

Schoenbrod, D. and Stewart, R. (2009). The Cap-and-Trade Bait and Switch. Wall Street Journal. (Eastern edition). New York, N.Y; pg. A.13.

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