Environmental standards entail the various regulations structured by the government agencies to control the levels of externalities from organizations. These standards are normally created by the environmental protection agencies (EPA’s). Hence, these agencies set up the maximum level of externalities that can be incurred by the organizations. In other cases, the EPA’s can also implement the required technology to be adopted by the companies so as to ensure they conform to the maximum levels of externalities. Thus, environmental standards are aimed at controlling organizational externalities in a much more direct manner. On the other hand, corrective taxes are market based policies that are aimed at controlling the levels of externalities from organizations (Kolstad, 74). Corrective taxes are implemented where a negative externality is produced by an organization. For this reason, the particular organization incurs an extra cost that equals the resulting externality.
In cases where there exists a positive externality which is presumed to be an underlying benefit, subsidies are imposed on the given companies. Thus, corrective taxes are viewed as incentives that are doctored to control the amount of externalities to the society. The corrective taxes are also known as Pigouviantaxes. Lastly, tradable permits are licenses that give consent to the companies to engage in a given externality to specified level that is accorded by the permits. However, the companies also have the right to sell part of their permits to other related companies that would be engaging in the same externality. Hence, these permits initiate some given level of trading between companies that incur externalities which in, the long run,and helps to limit externalities. This is achieved by selling restricted number of permits thus, to allow the market forces to determine the pricing of those permits.
Pros and Cons of the Policies
Environmental standards have an advantage of being able to control the quantities of externalities from industries since they are more direct in their nature and hence give specific levels of engaging in the externality. Also, environmental standards’ being regulated by the government makes it an ideal policy of controlling externalities because it is deemed easier for the command to catch up with the evaders of the set policy. The disadvantage of environmental standards is because of their command and control nature, they do not offer incentives to the companies to reduce the levels of externalities. Consequently, environmental standards would mostly be effective in the short term since the companies have to engage in mass productions in the long run. The main advantage of corrective taxes is that they offer incentives to the companies engaging in externalities hence, they are able to accomplish the goal of controlling those externalities more effectively.
In the case of a subsidy, the related companies benefit from government subsidies which promote their business (Gruber, 56). Another pro is that corrective taxes would allow the adoption of given types of technology so that companies can achieve the given levels of externalities. However, the disadvantage of corrective tax is that being a tariff imposed on the companies, it opens room for companies to evade the corrective taxes so as to reduce compliance costs. Tradable permits, on the other hand, provide a mechanism for restricting the rights to engage in externalities and thus it helps greatly in reducing the levels of externalities. Tradable permits also have the advantage of allowing companies to engage in the business of selling permits thus enabling them to earn extra revenue; hence it’s an incentive of a kind. However, tradable permits carry the disadvantage of allowing a trade off with negative externalities which many people believe should not be the case (Shavell, 16). Thus, this might somehow encourage companies which do not suffer huge costs in buying the permits more room to engage in negative externalities.
Quantity Regulation and Greenhouse gas emission comments
A quantity regulation can only be placed as opposed to a price regulation when the quantities are based on the costs of externality reduction for the given companies however, it would be inefficient to adopt quantity regulation. Consequently, quantity regulation can be adopted if tradable permits are implemented since it would be easy to regulate the quantity of externalities based on the permits awarded. Given the increased level of globalization in the US and across the world, President Obama’s move on the reduction of greenhouse emissions is very efficient and likely to bear fruits in the long run. According to the policies adopted by the environmental protection authority (EPA), the US aims at encouraging clean power plan that would ensure that the levels of carbon emission are at a minimum.
Some of the notable strategies that confirm the workability of Obama’s plan include; the usage of wind power has tripled in the US, carbon emissions decreased by ten percent between 2007 -2013 and solar energy usage has increased by tenfold (Blake, 23). The EPA also announced they expect a reduction in carbon emission by thirty percent before 2030. The rapport involving China and USA in controlling the levels of greenhouse emission also seem to very ambitious and would thus be essential in the achievement of reduced climate change.