In my series discussing capitalism and socialism, a commenter said that both frameworks have problems with externalized costs. According to the internet, “Externalized costs are costs generated by producers but carried by society as a whole.” For example, pollution.
I want to discuss externalized costs through the lens of a specific concrete example: cap and trade policies in California. I choose this example
because I have a friend willing to explain it to me because I live in California and know all about it.
Generally speaking, cap and trade is a policy to reduce carbon emissions (or greenhouse gasses). The government auctions off “allowances” that give companies permission to produce a certain amount of carbon emissions. There are a fixed number of allowances available (that’s the “cap” part), and further carbon emissions are restricted. The companies are free to buy and sell the allowances at prices of their own choosing (that’s the “trade” part). The number of allowances decrease over time in order to meet the government’s pollution reduction goals.