Carbon Tax vs. Cap-and-Trade in the USA - Research Paper Example

Nevertheless, approximately five hundred and fifty billion dollars in subsidies is available every year all over the globe. Several nations have executed carbon taxes or energy taxes that are associated with carbon content and most of the environmentally linked taxes with ramifications for the emission of greenhouse gases in OECD nations are imposed on energy products as well as motor vehicles instead of direct carbon dioxide emissions. Opposition of the rising regulation of the environment like the carbon taxes usually concentrates on concerns that firms might relocate and there is a possibility of people losing their jobs.

However, there have been arguments that carbon taxes have a higher level of efficiency compared to direct regulation and may result to increased rates of employment. Numerous large users of carbon resources in the generation of electricity like the US and china among others, remain opposed to carbon taxation. If a tax is put in place, policymakers would levy a particular fee for every ton of carbon dioxide emitted or for every ton of carbon that is contained in fossil fuels. Through the tax entities would be motivated to reduce their emissions in the event that the cost of this reduction is lower than the costs associated with paying the related taxes.

Consequently, the tax would create an upper limit on the cost of reduction of emissions but the overall amount of carbon dioxide that would be generated in a specific year would remain uncertain. Conversely, through the cap-and-trade initiative, policymakers would set a limit on overall emissions in a particular period and would obligate the regulated entities to hold allowances to the emissions that are allowed under the cap (Hordeski 196). Every allowance would permit companies to emit a single tone of carbon dioxide of have one tone of carbon in the fuel they sell.

Consequent to the distribution of the allowances for a specific period, entities would have the freedom to