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Carbon Tax Vs. Cap And Trade

1724 words - 7 pages

“All across the world, in every kind of environment and region known to man, increasingly dangerous weather patterns and devastating storms are abruptly putting an end to the long-running debate over whether or not climate change is real. Not only is it real, it's here, and its effects are giving rise to a frighteningly new global phenomenon: the man-made natural disaster.” BARACK OBAMA, speech, Apr. 3, 2006. Climate change is not a theory contrary to what many individuals believe and is in fact confirmed by major scientific agencies such as the National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautics and Space Administration (NASA) in the United States. Global Warming causes are mainly due to greenhouse gases that are trapped in the atmosphere and cause depletion of the earth’s ozone layer. Carbon Dioxide is a greenhouse gas, and although it is a necessary component in our atmosphere as it helps plants perform photosynthesis, too much of it causes ozone depletion and therefore climate change. Carbon Dioxide levels in the atmosphere have increased tremendously after the industrial revolution, which indicates that the major cause of this issue is due to anthropogenic activities.

The issue presented in this paper is how one can aim to reduce the amounts released, and what the best ways to solve this problem are. This has been long debated amongst scientists, businessmen, Industry-owners, and politicians amongst many other eminent figures in society. The four major approaches to reducing carbon dioxide in the atmosphere include: subsidies of alternative energy, cap and trade, carbon taxes, and command and control regulation. We will examine and compare the effectiveness of two of these methods: The carbon cap and trade system, and carbon taxation.
The popular solutions both propose placing a price on Carbon Dioxide, in hopes that it would cause households and industries to reduce their greenhouse gas emissions. Government enacted solutions are probably the most effective ways to reduce carbon emissions and to control pollution since unfortunately the majority of individuals mainly act to their own self-interest and are not concerned with the future of the planet. This is a prime example of the tragedy of the commons, which is the exploitation of a common resource. In this case the common resource is the atmosphere. The first method proposed is the carbon cap trade system. The term cap means the limit or the maximum of the amount of pollutant to be emitted. A trade refers to the transfer of permits that have to be bought by firms that need to increase their volume of emissions from firms that require fewer permits 1. The carbon tax method is a tax on the carbon content of fuels — effectively a tax on the carbon dioxide emissions from burning fossil fuels 2. So, which system would be best for the government to enact to reduce carbon emissions in the atmosphere?
First we should understand how the carbon cap and...

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