Comparing Carbon Cap and Trade System and Straight Carbon Tax - Essay Example

Introduction Many people around the world right now are concerned with global warming like never before. One basic truthabout energy dependence is that, sooner or later, the emission of greenhouses gases to the atmosphere is no longer going to be free. It seems that the imposition of legislation to curb carbon emission is inevitable. Many likeminded people have come into agreement that any law that will be put in place should achieve two main things, discourage the use of material that emit a lot of carbon, such as oil, natural gas and coal, and encourage the development and use of energy renewable sources such as solar power. To achieve this, two paths have been proposed, cap-and-trade system and straight carbon tax. Cap and trade system provide limits on the use of fossils, it will require that industries and other main sources of greenhouse emission buy permits from the government so as to be allowed to emit the gases, in those permits they will have to establish the market. Those in support of this method argues that, it will set the limit on the amount of greenhouse gases being emitted, secondly, it is more flexible, it is fair since it will reward companies who try to reduce emission and punish those not reducing emission (Salmon 2007). The second proposed path is straight carbon tax. This gives an outright tax on fossil fuels. With this, the cost of tax is set according to the damage associated with every unit of pollution and cost equivalent to the amount of controlling pollution. Emitting a lot of greenhouse gases means paying more. Those in support of this method argues that, it is simple since it will force the people look for alternative source of energy, secondly, it is enforceable both in economic and political environment, and lastly, the method is transparent. Body The advantage of cap and trade system over straight carbon is that, it has attracted a lot of interest and attention from political, public, and industrialist. The political leaders it has attracted include president Obama, main congress leaders, and environmental crusaders. The industrialists that have attracted include General Electric leadership, Shell oil management, and Duke Energy executives (Salmon 2007). The congress key leaders have vowed to pass cap-and-trade law before the end of the year. The straight carbon tax debate was trashed out by the congress and industrial crusaders went against it claiming that it will be used by the reach and it is like the rich is buying the environment to pollute at their own pleasure. The second strength of cap-and-trade is that, it sets a steady decline in the emission of greenhouse gases, and by setting up markets that rewards industries for reducing the carbon they emit, the industries will reduce emission far much below what they are allotted, and the remaining space they will sell it to other industries (Salmon 2007). The system uses a free enterprise system to pull the country into abandoning the use of fossil fuels and resort to renewable energy sources. That cannot be provided by the straight carbon tax system. When it come to the matter of emission certainty, cap-and-trade system is better. The system set limits for carbon emission, while the carbon tax system does not. The level is set at a limit that environmental desires are achieved, and every corporation will have flexibility of deciding how they will achieve their targets (Metcalf 2007). In carbon tax, not target amount of emission is set. The amount of carbon emitted depends on the energy demand. Allowing the corporations to emit any amount they want as long as they can pay increase the rate of pollution? Straight carbon tax system also has its own strengths over cap-and-trade system. On matters of price predictability, carbon tax system is better because the price of carbon is fixed, which means that it create a permanent incentive to reduce carbon emission, and if it is set at suitable level, it will encourage development and use of renewable source of energy. With the cap-and-trade system, the prices of permits vary from season to season. When there is an increase in the number of industries, the demand for permits goes up hence pushing the prices up (Revelle 2009). This volatility in permit prices disrupt the market for energy and its products, this will make business planning difficult. It is easy to implement carbon tax system since it does not require new administration structure. It can be developed on existing administrative structures of existing taxes like excise taxes on petrol. At the same time it is transparent and easy to understand. Carbon and trade system need complex understanding of the market structure so as to be able to balance the competing interest. Allocations of permits for free will make it hard to approximate the economic impact of the system on consumers and corporations (Revelle 2009). Auctioning of permits provides a clear carbon price signal and it will create transparency in then system. Lastly, carbon tax system provides quick results. Taxes can be designed and adopted fast. In contrast, cap and trade system is complex and it will take several years before being implemented. Small issues should be resolved with intellectually. Because the cap and trade system take long, the polluters will continue to release the greenhouse gases to the atmosphere with no cost (Revelle 2009). I have looked at the strength and weakness of both sides and according to my analysis, cap-and-trade system is better. Thought both sides have strengths and weakness, cap-and-trade reasons are weightier and appealing that carbon tax. My main reason which I believe it will curb carbon emission is that the amount of carbon that is allowed to be released is set by the government. Unlike in carbon tax system, there is no limit and the rich will pay to emit any amount they want. Another strong reason is that it is appealing to both political and business class making it easy to implement though the system is quite complex. Even if it is complex, it can be implemented so long as the political will and environmental crusaders gave it a boost. Unlike carbon tax which is easy to implement but it is not appealing to general public. Conclusion In conclusion, Global warming is real and everybody should take a step towards restoring sanity across the globe. The truth is that carbon emission is the leading cause of global warming and something must be done to curb it. Political leaders and industrialist should put aside their difference and move urgently towards finding a lasting solution. So far, the discussion is heading towards the implementation of one of the system that has been proposed, which is cap-and-trade system and carbon tax system. Both systems have their advantages and disadvantages, but all could curb the amount of carbon being emitted. Cap-and-trade system provide limits on the use of fossils, it will sets a steady decline in the emission of greenhouse gases, and it set the amount of carbon to be released. The carbon tax system is easy to implement, the price of carbon is fixed, and it provide quick results. References Felix Salmon. Why a Cap-And-Trade System Beats a Carbon Tax. Upstart business journal. 2007. Available from http://upstart.bizjournals.com/views/blogs/market-movers/2007/04/19/why-a-cap-and-trade-system-beats-a-carbon-tax.html?page=2 Eleanor Revelle. Cap-and-Trade Versus Carbon Tax: Two Approaches to Curbing Greenhouse Gas Emissions. The League of Women Voters. 2009. Available at http://www.lwv.org/content/cap-and-trade-versus-carbon-tax-two-approaches-curbing-greenhouse-gas-emissions “Vs.Cap-Trade”CarbonTaxCenter. 22/03/2011.http://www.carbontax.org/issues/carbon-taxes-vs-cap-and-trade/ Gilbert E. Metcalf. A Proposal for a U.S. Carbon Tax Swap: An Equitable Tax Reform to Address Global Climate Change. The Brookings Institution. 2007. Available at http://www.brookings.edu/~/media/Files/rc/papers/2007/10carbontax_metcal... or http://tinyurl.com/dch2nb Read More