In the 1970s in U.S. cities, air emissions were governed almost completely by pr
ID: 1221031 • Letter: I
Question
In the 1970s in U.S. cities, air emissions were governed almost completely by prescriptive regulations. One of the problems faced by regulations in large urban areas with air quality well below desirable levels was how to let new polluters into the city without reducing air pollution. Regulators came up with an innovative approach called the offset system. New sources had to “convince” exiting sources of emission to reduce emissions. The overall effect of all of the reductions had to at least offset the pollution additions by the new sources. Explain why or why not this so-called “offset system” is equivalent to a marketable permit system. (200 words minimum)
Explanation / Answer
The imposition of limit on the emissions from firms can be described as equivalent to a marketable permit system because the structure of such tradable limits become similar to that of law of supply and demand in a market. The regulators of pollution emissions would allow the firms to exceed their permissible limit until and unless they have purchase their rights for pollution abatement in other sector so that it can their own excess emissions. Hence, it is similar to offset the reduction in cost of emissions control by extending the capacity incentives for several technological changes in other economic activities. Examples of such type of ‘Offset systems’ are EU climate policy, current regional and proposed national US climate policies, and the US Clean Air Act all allow offsets.
In case of emission based system, the permits are being allowed in terms of emissions level but not in terms of the effect of these emissions on the quality of environment. Hence, it does make use of setting up of emissions level as done in the market supply. The allocation permits to each creator is provided on a one-to-one basis, thereby determining the market forces of supply and demand in a specific zone. There are no trades across zones: each zone is a self-contained market with its own price for permits determined by the polluters’ demand for permits and the supply as determined by the authority.