Editing Emissions trading (section)

===Market and least-cost===

Some economists have urged the use of market-based instruments such as emissions trading to address environmental problems instead of prescriptive "command-and-control" regulation.<ref name="stavins98">{{cite journal|last=Stavins|first=Robert N|year=1998|title=What Can We Learn from the Grand Policy Experiment? Lessons from {{chem|SO|2}} Allowance Trading|journal=The Journal of Economic Perspectives|series=3|publisher=American Economic Association|volume=12|issue=3|pages=69–88|doi=10.1257/jep.12.3.69|jstor=2647033|doi-access=free}}</ref> [[Command and control regulation]] is criticized for being insensitive to geographical and technological differences, and therefore inefficient;<ref>Bryner, Gary C. Blue Skies, Green Politics: the Clean Air Act of 1990. Washington, D.C.:Congressional Quarterly Inc., 1951</ref> however, this is not always so, as shown by the WWII rationing program in the U.S. in which local and regional boards made adjustments for these differences.<ref>Cox, Stan (2013). [https://thenewpress.com/books/any-way-you-slice-it "Any way you slice it: The past, present and future of rationing"] {{Webarchive|url=https://web.archive.org/web/20190815204318/https://thenewpress.com/books/any-way-you-slice-it |date=2019-08-15 }}. New Press Books.</ref>

After an emissions limit has been set by a government political process, individual companies are free to choose how or whether to reduce their emissions. Failure to report emissions and surrender emission permits is often punishable by a further government regulatory mechanism, such as a fine that increases costs of production. Firms will choose the least-cost way to comply with the pollution regulation, which will lead to reductions where the least expensive solutions exist, while allowing emissions that are more expensive to reduce.

Under an emissions trading system, each regulated polluter has flexibility to use the most cost-effective combination of buying or selling emission permits, reducing its emissions by installing cleaner technology, or reducing its emissions by reducing production. The most cost-effective strategy depends on the polluter's marginal abatement cost and the market price of permits. In theory, a polluter's decisions should lead to an economically efficient allocation of reductions among polluters, and lower compliance costs for individual firms and for the economy overall, compared to command-and-control mechanisms.<ref>Hall, JV and Walton, AL, "A case study in pollution markets: dismal science US. Dismal reality" (1996) XIV Contemporary Economic Policy 67.</ref><ref name="boswall" />