As an alternative to inflexible regulations, the U.S. started experimenting with a more market-oriented solution to pollution in the late 1970s. The process is called cap-and-trade.
A key element to a cap-and-trade programme is how it is designed specifically, who will reap the value of the emissions allowances. The Congressional Budget Office has studied several designs as they might apply to carbon emissions.
The designs are quite complicated. But suffice it to say that firms that must buy allowances will certainly pass along to consumers that increased business cost. The largest increases will show up in the prices of electricity, natural gas, fuel oil and coal, and gasoline.
The CBO estimates, for example, that an allowance price of $100 per metric ton of carbon would cause a 2.8 percent increase in the general price level.
Source: Susan Lee, How Much Is the Right to Pollute Worth? Wall Street Journal, August 1, 2001.
For text (WSJ subscribers) http://interactive.wsj.com/articles/SB996623498118721269.htm
For more on Regulatory Reform http://www.ncpa.org/pi/enviro/envdex12a.html
(Note: See Second thoughts on carbon dioxide emissions trading in this weeks Policy Bulletins for an alternative view on this issue.)
FMF\8 August 2001<\i>
