I read two articles today that got me thinking about the different methods that can be used to reduce CO2 emissions: an emissions trading scheme, a carbon tax, and regulations. First, we have James Hanson of NASA’s GISS who hopes Copenhagen will fail because he thinks that ETS is a “fundamentally wrong” approach (he prefers a carbon tax):
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| Quote: A leading scientist who helped alert the world to the dangers of global warming said on Thursday that climate talks in Copenhagen next week were based on such flawed proposals that he hoped they failed. James Hansen, the director of NASA's Goddard Institute for Space Studies since 1981, said attempts to forge a global deal on cutting emissions after the Kyoto treaty expires were based on a "fundamentally wrong" approach. "I would rather it not happen if people accept that as being the right track because it's a disaster track," he told Britain's Guardian newspaper ahead of the December 7-18 summit. Hansen is highly sceptical about a favoured measure of cutting greenhouse gas emissions, a cap-and-trade system under which a progressively stricter 'right to pollute' is exchanged in a carbon market. Instead, he has previously argued for a direct tax on fossil fuels as the only realistic way to achieve the necessary cuts. Source | |
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| Quote: CONOMISTS have rubbished Coalition plans to tackle climate change without an emissions trading scheme or a carbon tax. Critics include one of the Coalition's former economic advisers on climate policy, the Centre for International Economics. Its executive director, David Pearce, said he had been ''surprised'' by Liberal leader Tony Abbott's decision to dump a carbon price as policy. ''I would much prefer to see a price mechanisms in one way or another, be it a market mechanism, emissions trading or a tax,'' Mr Pearce said. ''Regulatory measures have less transparency. Subsidising specific measures is less efficient and could be done better by market-based mechanisms.'' Australian National University economists Stephen Howes and Frank Jotzo have both said emissions reduction could be achieved without a carbon price, but that it would be expensive and bureaucratic. Source | |
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First, a quick overview. The big three players are an ETS, a carbon tax, or regulations.
An emissions trading scheme (ETS) begins with a government putting a limit or “cap” on the amount of carbon the nation can emit. They give or sell carbon “permits” to companies that add up to this cap. If a company pollutes less than their permits allow, they’re allowed to sell the extra permits to the highest bidder. If a company starts to pollute more than their permit allows, they must buy extra permits from another company. In theory, this sets up a free market system of buying and selling where the price of carbon emissions is set by demand. In time, a government can reduce the cap, forcing overall reductions.
A carbon tax is theoretically simpler. CO2 emissions are given a price and taxed accordingly. Heavily-polluting goods (coal power, red meat, cement, petrol) would become more expensive whereas less-polluting goods would become less expensive in relative terms. Carbon taxes must be balanced by reducing other taxes such as income taxes so that the overall tax burden remains the same and individual households who pollute less will actually end up paying less tax than before. Like the ETS, this system also relies on market forces to reduce emissions. However unlike an ETS there's no cap, so theoretically if market forces fail pollution will continue to rise.
Finally we have the regulation and/or subsidy alternative. Both an ETS and carbon tax are combined with regulations and even subsidies, but some such as Abbott think that regulation alone is the answer. For example policy may dictate a freeze on new coal plants, or allot extra funding to research into clean coal, or subsidize solar power, or fund lots of new public transport. However this system has only indirect control over emissions, it contains no free market forces and it must be entirely taxpayer-funded.
So which system, or combination of systems, do you think would be most economically and environmentally efficient at reducing greenhouse gas emissions?
