CARBON TAX OR EMISSIONS TRADING SCHEME 2
Carbon Tax or Emissions Trading Scheme Discussion
Climate change and global warming have become global issues. Over the last few decades,
emissions of carbon dioxide and other greenhouse gasses such as methane and nitrous oxide have
played a huge role in increasing global temperature as well as raising sea levels. The emissions have
negatively impacted both the economy and the environment. The negative impacts encompass
human health risks, property damage as a result of storms as well as lessened agricultural
production. Consequently, there has been a growing concern to establish and implement strategies
seeking to reduce carbon footprint. Both the Kyoto Protocol and the Paris Agreement have played a
huge role in pressuring countries to devise measures to reduce carbon dioxide emissions. Some of
the two policies are carbon and emission trading scheme. Armed with this understanding, the paper
expounds on the two policies and provides an argument on why carbon tax makes more sense than
an emission trading scheme.
Defining and Discussing Carbon Tax and Emission Trading Scheme as Policies to reduce
Carbon Emission.
Carbon dioxide and other greenhouse gasses emission to the environment is changing the
climate. A carbon tax takes this into consideration and puts a price on those emissions, which
creates a motivation for people, organizations as well as government to reduce them (Robson,
2014). The burden of carbon tax falls most heavily on industries that use a lot of energy. The
government can use the revenue collected to invest in clean energy, climate adaptation as well as
creating awareness programs regarding the positive impacts of reducing carbon dioxide emissions.
Therefore, the main aim of the carbon tax is to ensure that individuals and industries pay the full
social cost of carbon pollution. From a theoretical perspective, the fossil fuel will cost more and
organizations will continue to lessen their use while seeking cheaper renewable alternatives. In the
long run, industries will transition from expensive high-polluting fossil fuels to cheap renewable
energy.
CARBON TAX OR EMISSIONS TRADING SCHEME 3
On the other hand, an emission trading scheme also referred to as cap and trade is also a
cost-effective strategy, which aims at reducing greenhouse gas emissions. To encourage industries
to lessen greenhouse gas emissions, a cap on the maximum level of emission is set by the
government, which creates permits for every unit of emission indorsed under the cap. Firms
emitting have an obligation to surrender a permit for each unit they emit. The permits can be
obtained from the government or a firm can trade with other firms. If a firm projects that it will not
have enough permits, it should either buy permits from another firm or cut their emissions. Thus, in
simple terms, the emission trading scheme acts as a tool, which puts a quantity limit and price on
greenhouse emissions. The emission units act as currency and the government has the responsibility
to issue them. Each unit can be seen as a voucher that allows a firm to emit a certain limit of
greenhouse gas. Thus, an emission trading scheme, just like carbon plays a role in lessening
greenhouse gasses that are emitted into the environment. Although the two achieve the same goal,
they are different and their discussions have raised controversies in Australia (Nugraha, 2017).
Under a carbon tax, the emission prices are fixed and the firms or polluters have a decision to make
on how much to emit. On the other hand, the trading scheme amount is fixed by the government,
and the price is set by the market.
Argument Why Carbon Tax makes more Sense than the Emission Trading Scheme
As highlighted, the two carbon pricing helps in achieving the goal of lessening the
greenhouse gasses emitted to the environment (Crowley, 2013). However, the merits of carbon tax
surpass that of the emission trading scheme. The majority of opponents of a carbon tax argue that
this can interrupt the economy. To avert this, a carbon tax can begin at a relatively low level, which
a crucial way of avoiding economic disruption, and then this can be increased steadily in a
predictable manner over time. This can be an encouraging way for the affected firms to cut their
emission and increase their energy use more efficiently (Hodgkinson & Johnston, 2015).
Consequently, this motivates firms to lower emission technology. In the long run, firms that have
progressed better in cutting their emissions incur fewer costs, which in turn can enable a firm to
CARBON TAX OR EMISSIONS TRADING SCHEME 4
create a competitive edge in the market. On the other hand, as compared to the carbon tax that can
be implemented slowly, an emission trading scheme is very costly and can damage the economy of
a country.
As a tax, the carbon tax will provide a way for the government to gain revenue. The tax can
be used to lessen other taxes in the country such as corporate and personal income tax, which can
have a positive impact on ameliorating the economy of the country (Hodgkinson & Johnston, 2015).
A carbon tax can act as revenue-neutral. Revenue neutral, in this case, entails a system where all
revenues that accrue to the government from pricing systems such as carbon tax are returned to fund
other aspects through tax cuts. As compared to the emission trading scheme. Carbon taxes are easy
to understand and implement since they have around for centuries in one form or another. Price-
based taxes such as carbon taxes are vital as they capture revenue more easily as compared to other
quantitative instruments such as the emission trading scheme since the infrastructure for collecting
tax is already in place. As compared to carbon trading, taxation has lower administrative as well as
compliance costs.
Taxation is arguably the most direct and transparent method that can be implemented as a
carbon pricing strategy as compared to an emission trading scheme. In particular, carbon taxing
provides an avenue that disrupts corruption since the money moves from firms directly to the
government. Corruption negatively impacts the success of emissions trading schemes in lessening
the overall effectiveness and reliability of greenhouse gas markets (United Nations Environmental
programme, 2013). In the report stipulated by the United Nations Environmental programme
(2013), the implementation of the emission trading scheme has been recurrently tainted by cases of
fraud and bribery, abuse of power, and other forms of corruption both in developed and developing
countries. Corruption in this carbon pricing policy has taken other forms of exploitation such as
scientific uncertainties for profit as well as manipulation of greenhouse market prices. Thus, as
compared to the carbon tax, the emission trading scheme is faced with corruption. It is significant to
indicate that corruption possess a challenge to climate finance, which in turn affects environmental
CARBON TAX OR EMISSIONS TRADING SCHEME 5
governance. United Nations Environmental programme (2013) pinpoint that “domestic and
international anti-corruption initiatives have proliferated, with the process being largely driven by
the increasing recognition of the impact of corruption on the quality of environmental governance”
(p.5). Thus, a carbon tax should be implemented as opposed to the emission trading scheme.
The carbon pricing of imposing the tax provides certainty and stability as compared to the
emission trading scheme, which relies on volatility of tradable carbon permits. Certainty and
stability play a huge role in ensuring effectiveness in lessening greenhouse gas emissions. The tax
under the carbon tax can be adjusted easily to lower the effects of inflation. Through certainty, firms
emitting greenhouse gasses have an opportunity to determine the viability of new and clean
technology that has minimal impact on climate change (Hodgkinson & Johnston, 2015). Notably,
every greenhouse gas emitted to the environment cause damages that hugely affect society. Through
certainty and stability offered by the carbon tax, the price of emission forces emitting firms to face
the cost of emission, which consequently causes them to lower emission options. The decisions to
consume goods and services made with fossil fuels are made by a lot of people/households and
firms across the globe. The best way to reach the goal of ensuring firms emitting greenhouse gasses
pay is via a carbon tax. To avoid disrupting the economy, the tax should be added slowly and with
time, firms emitting greenhouse emissions will shift to other alternatives of renewable energy. This
will play a crucial role in reducing carbon dioxide emitting activities.
Conclusion
The analysis indicates that the two carbon pricing, carbon tax, and emission trading scheme
can play a huge role in lessening the number of greenhouse gasses emitted to the environment. With
tax, the government comes up with a tax rate, which is imposed on firms depending on the amount
of emission. With the emission trading scheme, the government sets a limit on the amount of
greenhouse gas emissions and distributes allowances that are equal to the limit. Thus, carbon tax
enables firm emitting emissions to pay for the costs of their emissions. If we are seeking to lessen
activities across the globe that leads to carbon emission, it is crucial to increase the amount imposed
CARBON TAX OR EMISSIONS TRADING SCHEME 6
on those engaged in such activities. Appropriate prices that do not interrupt the economy is a key
aspect and the most important way to make firms pay is by making the process easier and
transparent. That is exactly what carbon tax does, which makes it to be the best carbon pricing that
can help lessen greenhouse gas emissions and eradicate the issue of climate change.
CARBON TAX OR EMISSIONS TRADING SCHEME 7
References
Bailey, I., MacGill, I., Passey, R., & Compston, H. (2012). The fall (and rise) of carbon pricing in
Australia: a political strategy analysis of the carbon pollution reduction
scheme.DEnvironmental Politics,D21(5), 691-711.
Haita, C. (2013). Linking Emission Trading Schemes: Pros and Cons.DInternaional Center for
Climate Governance.
Crowley, K. (2013). Irresistible force? Achieving carbon pricing in Australia.DAustralian Journal of
Politics & History,D59(3), 368-381.
Hodgkinson, D., & Johnston, R. (2015). Politics aside, A simple carbon tax makes more sense than
a convoluted emissions trading scheme.DThe Conversation,D31.
Nugraha, N. A. (2017). Controversies of the Implementation of Carbon Tax Policy for the
Australian Economy: Harmful or Beneficial?.DAndalas Journal of International Studies
(AJIS),D6(2), 109-122.
Powered by TCPDF (www.tcpdf.org)
