Teacher : M.
Ali Yasir Sial
Froebel’s Int. School. PR Campus
Pollution Permits:
Also known as ‘tradeable permits’ and ‘carbon trading scheme’.
Definition with example:
“Pollution permits involve giving firms a legal right to pollute a
certain amount e.g. 100 units of Carbon Dioxide per year.” For
examples, Sulphur Trading scheme. In 1990, the US pursued a form of
sulphur trading scheme which gradually reduced the number of
permits to pollute sulphur. (a cause of acid rain). It was relatively
straight-forward as sulphur emissions came predominantly from coal-
burning power stations The scheme was successful in reducing
sulphur dioxide by 40%.
Analysis:
The aim of pollution permits is to provide market incentives for
firms to reduce pollution and reduce the external costs
associated with it. For example, it is argued carbon dioxide
emissions contribute towards global warming. Pollution permits
will help reduce these emission. Permits can also be a way for
the government to raise revenue, by selling firms these permits
to allow pollution.
If the firm produces less pollution it can sell its pollution permits
to other firms. However, if it produces more pollution it has to
buy permits from other firms or the government. This creates a
market for pollution permits with the price set by demand
and supply.
Suppose there is rapid economic growth and the demand for
producing pollution increases, the cost of tradeable permits will
also rise.
Teacher : [Link] Yasir Sial
Froebel’s Int. School. PR Campus
The government reduces the number of permits over time. This
means the price of permits will steadily increase and create a
growing incentive to reduce pollution over time. The idea is that
it gives firms time to try and invest in different technology which
creates less pollution.
Evaluation (Problems of Pollution Permits)
There are administration costs of implementing the scheme
and measuring pollution levels.
It can be difficult to measure pollution levels. There is
potential for hiding pollution levels or shifting production
to other countries, with loose environmental standards. In
a globalised world, multinationals increasingly shift
production in countries with low environmental regulation.
It is difficult to know how many permits to give out. The
government may be too generous or too tight.
For global pollution permits, countries who pollute more
than their quotas can simply buy permits from other
countries. Therefore rich developed countries can simply
buy permits from less developed countries. This does not
significantly reduce pollution but shifts it from the richer
countries to poorer countries.
Conclusion:
Although pollution permits give incentives to firm to reduce
pollution however, it may lead to overestimate or under
estimate pollution level because it is difficult to measure
pollution levels especially in developing countries like
Pakistan.
Revenue raised from permits can be used to introduce
green-technologies by the government.
However permits may fail to control pollution as demand
for carbon permits is often price inelastic and too slow to
act.
Teacher : [Link] Yasir Sial
Froebel’s Int. School. PR Campus
In conclusion, pollution permits can be useful if these are
used along with other policies such as regulations, fines
and provision of information through awareness
campaigns.
