Economic Analysis Of Emissions Trading

With the development of the economy, environmental pollution becomesworse. Furthermore, it restricts sustainable development of the economy. Inspirited pursuit of low cost and efficient means of cleaning up pollution isindeed imperative. In this article I research the cause resulting in pollution andeconomic principle of control by economic theories, and on the basis of these,I will adopt the means that combines theory with practice to study how tocontrol pollution by economic means.First I introduce the basic knowledge of emissions trading in this article.Emissions rights is a kind of environmental property rights. According to thecharacteristic that property rights can be traded, emissions rights may betraded just as commodities. So we can make use of it to clean up pollution.There are four advantages such as reducing costs, improving techniques, beingeasy of controlling and developing rational location of industries aboutemissions trading.Next I analyze the economic basis of emissions trading by theory ofexternality and theory of property rights. Theory of externality is not only thebasis of emissions trading but a pillar of environmental economics andenvironmental policy. On one hand, it discloses the seeds of inefficiency in thedistribution of resources. On the other hand, it gives alternative ideas anddirections to solve uneconomical questions of environment. Environmentalquestions are thought to be typical externality. This article is mainly about themeans that make externality internalized. On the whole, there are two kinds ofmeans such as direct control and economic -stimulation. It has been provedthat direct control is partly effective and can't solve externality completely.Thus the means of economic -stimulation is a better auxiliary means.Theory of property rights is another basis of emissions trading. Theformation of this theory includes two stages. The first stage: in the 1930'seconomists thought about microeconomics critically and brought forward thatfriction exists in economy which is called transaction cost. The paper thattypified this was "the Nature of the Firm" by R.H.Coase, which was publishedin Economica. The second stage: by the mid -fifties and sixties, Coaseanalyzed the importance of clearly established ownership in the economicactivities and pointed out the functions of property rights lie in overcomingexternality and cutting down the costs. The masterpiece was "the Problem ofSocial Cost" by R.H.Coase, which was published in the Journal of Law andEconomics in 1960. This marks the formation of property rights school. Property is a kind of rights to benefit or harm oneself or others. It isdifferent from ownership. The former means whether the owner of propertymay benefit or harm oneself or others. This kind of rights is for the relationsbetween the owner and others that are influenced by the owner's behaviors,not for the owner. The latter means whether the owner has the rights ofpossessing, operating, disposing and distributing property. This kind of rightsis for the owner himself and exclusive. Property rights must be clearly defined,special, safety and transferable in order to guarantee the validity of thedefinition of property rights. According to Coase theorem, if transaction cost iszero and transaction is free, the wrong allocation can be corrected regardlessof initial allocation of rights. While transaction cost is positive, the distributionof resources can be improved as long as transaction is allowable. So far human have invented various institutional arrangements in order toovercome externality. The questions of externality that had been solved byinstitutional innovation have not been problems. What we face today are thequestions without being solved. Our tasks are seeking new institutions to solveexternality. Adverse side of the proposition that existence and function ofgovernment are solving externality is not tenable. That is to say not all theexternality questions can be solved only by government. Through some kindof institutional arrangement such as the arrangement turning quota deal ofgovernment into trading in market between firms, externality can beinternalized. On this basis, emissions trading can realize efficient distributionof resources after being approbated by law and transferable. Emissions trading of American include two programs. One is emissionstrading, another is acid rain program. To some extent two programs are typicaland representative of development of emissions trading in American. There arefour revelations for our country: 1. Emissions trading should be approbated bythe law; 2. Keeping the integration between emissions trading and the controlof total quantity; 3. Determining total quantities of emissions reasonably andselecting the ways of initial allocation of rights cautiously. 4. Orientatingfunctions of government correctly.Emissions trading have been launched at some selected points andproduced active results in our country. At the same time, weaknesses do existsuch as imperfection of market, indetermination of the functions ofgovernment and unfairness of initial allocation and so on. We need borrowexperiences from American to modify emissions trading of our country toreduce transaction costs and produce the best results with all possible. In theend this article gets to draw following conclusions: 1. Emissions trading is the one that is "the most hopeful imagination" inenvironment policies of 1980's, the emergence of which based on the commonunderstanding of recognition, awareness, reflection in environmental problems.The successes of American emissions trading in 1970's and acid rain programin 1990's demonstrate that emission trading, the legally economic means, isthe win-to-win, effective measure to the realization of environment protectionand the development of economy. 2. Building up effective property rights system, making certain whatownership the environment is related to, thus insuring the environmentresources be used with payment, making externality of pollution internalized,...