Compare Carbon Taxes With Emission Trading Schemes As Government Policy Tools

1594 words - 7 pages

Compare carbon taxes with emission trading schemes as government policy tools.


Why do we need environmental control

Over the last century and a bit the world have added 40% more CO2 to the Earth’s atmosphere. Every year the World collectively add more again than we did the year before. The Earth is on an accelerating drive to change our planet’s atmosphere. The main source of this additional CO2 is the burning of fossil fuels.
There is a common consensus that global warming is an effect of increased carbon emission and only a few groups still hold on to the belief that there is no connection between emissions of greenhouse gases (Carbon) with the effect of global ...view middle of the document...

The only way to reduce carbon footprint and reduce the emission of CO2 is to put a price on emission of carbon and therefore ‘make the polluters pay’. This way the price to pollute will be included as a cost variable and considered the same way that expenses such as wages, rent, electricity, royalty etc are considered. When a price is put on carbon emission, it provides a clear disincentive to continue the current level of carbon emission but reduce carbon emission in a way that has the least impact on the current company production.

In addition, a price on carbon emission means extra costs to the company and this has the effect of the company to not just reduce emissions but to explore other alternative energy type such as renewable energy. The benefit is long term carbon emission reduction and potential development of low-emission technology for future use.

Carbon Tax

A carbon tax as the name suggests itself is a tax on pollution or carbon emission. The government set a price on the price of carbon with the resulting market force determining how much quantity of emission is reduced. Since there is a price on carbon emission, it becomes one of the factors of doing business and therefore a price that need to be paid by the business. Just like costs such as labour costs, rent and electricity- the price of carbon emission is another cost that the business needs to bear. There are no limits on how much emission a company can do, but any emission the business undertakes will need to be paid for in term of carbon tax.
Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions. Carbon tax address the issue that the polluters are not taxed sufficiently for the extra pollution that these companies are emitting to the local atmosphere. The pricing of carbon will need to be specific and take into consideration factors such as
• The desirable emission level on a global scale
• The amount of revenue the government would like to generate from the scheme
• Likelihood of reduction in carbon emission on productivity
• Likelihood to alter carbon price in the future

Currently, Australia has a carbon pricing mechanisms where companies that emit over 25,000 tons per year of Carbon dioxide equivalent greenhouse gases and which are not in the agricultural or transport industry are required to surrender their permit and pay tax on the excess emissions. Government agencies report that in Australia, over 260 companies were liable to pay carbon tax in 2013(Department of Climate Change).


Emission Trading Scheme

The emission trading scheme on the other hand is a government initiative that set a limit on the total emission that is applicable and issue permits to emit a specific volume of pollutant. The permit can be traded and as a result, the market determines the price of carbon by the trading of permits – another word for emission trading. Therefore the government set a limit on the...

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