Economics: Carbon Tax vs. Cap-and-Trade System

Statement of Thesis

Over the past few years, environmental issues in general and the issue of carbon emission in particular have gained impressive significance. In order to prevent the CO2 emissions from destroying the ozone layer and slacken down the process of ozone depletion, two major methods of reducing the air pollution rates caused by vehicles have been suggested¹. Though both the carbon tax and the Cap and Trade system basically refer to the same concept of making people control their use of petrol powered cars, the approaches that they propose differ considerably. While the carbon tax states that the carbon emissions produced by a specific vehicle or in the course of a certain industrial process, should be taxed in direct proportion to the amount of CO2 emitted, the Cap Trade system presupposes that the principle of emission fee should be incorporated into the current set of principles for environmental sustainability². While the carbon tax seems more efficient, as it discourages the very usage of environmentally hazardous vehicles and devices, the Cap Trade system seems a more realistic strategy to adopt, as it involves a smooth transition from one type of energy production to another and a more sustainable one³.

Statement of Significance

The significance of the paper is predetermined by the fact that the environmental issue is currently becoming increasingly significant for the entire humankind. As recent reports and researches show, increased emissions of CO2 contribute to a rise in the global temperature, as they create the infamous greenhouse gas effect. Consequently, the global climate is altering, therefore, triggering major concerns. Among the most significant ones, the change of habitat and the subsequent extinction of a range of species, the melting of the ice caps and the following rise of the sea level, with a range of floods all over the world ensuing, the depletion of the ozone layer and the following enhancement of the global warming, must be mentioned⁴.

The issues listed above, in their turn, have a major effect on people’s health. Climate change triggers weakness in the immune system of a human body, therefore, creating a gateway for people to contract various diseases. Floods obviously pose a life threat to the people living in the coastal areas, and the extinction of several essential animal and plant species may cause famine. Hence, when choosing the policy for addressing the issues in question, i.e., the methods of reducing the CO2 emissions, one must by especially careful. As there are two equally impressive options and present and only one right choice to be made, the significance of the study is quite high.⁵

Main Points

From an economic perspective, the concept of the Cap Trade system can be viewed as preferable, since its way of distributing the cost of reducing pollution and helps the owners of the vehicles that produce CO2, as well as the entrepreneurships, which emit CO2 in the course of the production process, to retain their property and at the same time comply with the principles of sustainability. The carbon tax, in its turn, literally forces the owner of the device that pollutes the environment to take huge losses in buying the new and a more advanced one. It is more likable that people will agree to reduce carbon emissions rather than take unexpected and rather impressive costs to buy new ones.⁶

Bibliography

Antonovskii, M. Ya. “Exponential Analysis in Assessing the Contribution of Greenhouse Gases Emissions to Global Warming.” Russian Meteorology and Hydrology 36, no. 1 (2011), pp. 25–32.

Gillett, Nathan P., Vivek K Arora, Damon Matthews and Myles R Allen, “Constraining the Ratio of Global Warming to Cumulative CO2 Emissions Using CMIP5 Simulations,” Journal of Climate 26, no. 18 (2013), pp. 6844–6858.

Griffin, Paul A. “Cap-and-Trade Emission Allowances and US Companies’ Balance Sheets.” Sustainability Accounting, Management and Policy Journal 4, no. 1 (2013), pp. 7–31.

MacKenzie, Ian A. and Markus Ohndorf. “MacKenzie, Ian A and Ohndorf, Markus Cap-and-Trade, Taxes, and Distributional Conflict.” Journal of Environmental Economics and Management 63, no. 1 (2012), pp. 340–342.

Wittneben, Bettina B.F. “Exxon Is Right: Let Us Re-Examine Our Choice for a Cap-and-Trade System over a Carbon Tax.” Energy Policy 37, no. 6 (2009), pp. 2462–2464.

Footnotes

1. Gregg Marland, Thomas Buchholz, and Tammy Kowalczyk, “Accounting for Cabron Dioxide Emissions: The Context and Stakeholders Matter,” Journal of Industrial Ecology 17, no. 3 (2013), p. 343.
2. Bettina B.F. Wittneben, “Exxon Is Right: Let Us Re-Examine Our Choice for a Cap-and-Trade System over a Carbon Tax,” Energy Policy 37, no. 6 (2009), pp. 2463.
3. Paul A. Griffin, “Cap-and-Trade Emission Allowances and US Companies’ Balance Sheets,” Sustainability Accounting, Management and Policy Journal 4, no. 1 (2013), p. 21.
4. Nathan P Gillett, Vivek K Arora, Damon Matthews and Myles R Allen, “Constraining the Ratio of Global Warming to Cumulative CO2 Emissions Using CMIP5 Simulations,” Journal of Climate 26, no. 18 (2013), p. 6844.
5. M. Ya Antonovskii, “Exponential Analysis in Assessing the Contribution of Greenhouse Gases Emissions to Global Warming,” Russian Meteorology and Hydrology 36, no. 1 (2011), p. 26.
6. Ian A MacKenzie and Markus Ohndorf, “MacKenzie, Ian A and Ohndorf, Markus Cap-and-Trade, Taxes, and Distributional Conflict,” Journal of Environmental Economics and Management 63, no. 1, (2012), p. 58.