Carbon Taxes versus Tradable Permits-Free-Samples for Students

Question: Write a report on Carbon Taxes versus Tradeable Permits. Answer: Introduction The Carbon Taxes and Tradable Permits are the policies which are implemented by the government in order to bring Green solutions into use. Its aim is to reduce the gas emissions and global warming which is caused due to its use. This report includes a brief description about Carbon Taxes and Tradable Permits and the manner in which these policies work along with the diagrams to illustrate the working of these policies. It also includes a clear comparison between the two policies. Meaning of Carbon (Emission) Taxes and Tradable Permits and how it works The tax which is imposed on the carbon content of the fuels is called as Carbon Tax. To encourage green practices among households and industrialized companies and for promoting investments in cleaner technologies and discouraging fossil fuel emission the same is being imposed (David Suzuki Foundation, 2017) It is levied on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. To reduce its consumption government sets price per ton on carbon and then translate the same into a tax (Dowdy, 2017). By imposing tax on carbon consumers and producers are given monetary incentive to reduce their carbon emissions. (Source: U.S. Department of Energy, 2004) Figure 2: Gasoline Price Versus Use in industrial Countries, 2003 Tradable permit system is a pollution control tool in which an overall limit which is called as cap is imposed by the government for controlling the overall level of carbon pollution. When the cap decreases every year (as per the limit fixed by the government) it emphasizes the polluters to buy the unused quota from other companies because they have exceeded their emissions. The economic incentive given to companies leads to lower pollution through emissions and support clean energy (David Suzuki Foundation, 2017). (Source: Gordon, 2012) The above figure explains the working of both the policies in which point A will generate emission equal to quantity (Q0) and the price will be (P0). Now the government wants to reduce the quantity to Q1. In Carbon Tax amount of tax is added to the price and the price will increase to P1. And, in case of Cap-and-trade the government restricts emissions to Q1. The quantity is determined by the Cap and the price will increase to P1. The difference between both the working is of T. In case of Carbon Tax, T goes to government but in case of Cap it is a pure profit (Gordon, 2012) Carbon Taxes versus Tradable Permits The environmental and economic effectiveness depends upon how the system is being designed. The carbon tax policy for taxing fuels is quicker for governments to implement since it is easy to rely on the existing administrative structures and can be implemented in lesser time but in case of tradable permits more time is required to formulate the required regulations and they are more prone to loopholes. And an emission trading market is also required to be established. The amount of emissions reductions can be provided with more certainty in case of cap and floor based system rather than carbon tax because it can only provide the price with certainty and not the amount. The advantage of tradable permits is that it encourages the least cost carbon reduction and the nations which are developing can convert the permits into an export commodity and thus selling the permits to the industrialised nations who are unable to meet their reduction requirements. One of the drawbacks of selling permits is that the nation would be able to continue the emissions at current level by buying permits.(Harris JM Codur AM,2012) When the effect on prices are considered then Carbon Tax is an appropriate policy but if the concern is on quantity Cap-and-trade System is effective since it provides assurance that the targets will b met.(Gordan,2012) Conclusion Whether the carbon tax or the tradable permits is a best way for pollution control is a big debatable discussion. The simple answer to which is the manner in which the system is designed. Both the programs work well and are designed accordingly to support its objective. The more familiar type of policy tool is carbon taxes over the tradable permits since it can be easily executed using the existing administrative equipment. Deployment of tradable permits is rising in the United States and the results of using the same have been positive. The developed countries all over the world are encouraging the implementation of the tradable permits. (Norregaard Hill, 2000). References David Suzuki Foundation. (2017). Carbon Tax or Cap-and-trade. Retrieved from https://www.davidsuzuki.org/issues/climate-change/science/climate-solutions/carbon-tax-or-cap-and-trade/ Dowdy, S. (2017). How carbon tax works. Retrieved from https://science.howstuffworks.com/environmental/green-science/carbon-tax.htm Forest Carbon Management. (2017). Tradable Permit System https://fcm.sgrc.selkirk.ca/carbon-economy/tradable-permit-system/ Gordan, S. (2012).What you need to know about carbon taxes and cap-and-trade. Retrieved from https://www.macleans.ca/economy/business/why-the-difference-between-carbon-taxes-and-cap-and-trade-isnt-as-important-as-you-think/ Harris, JM. Codur, AM. (2012). Policy responses to climate change. Retrieved from https://editors.eol.org/eoearth/wiki/Policy_responses_to_climate_change Norregaard, J. Hill, VR. (2017). Controlling pollution using taxes and tradable permits. Retrieved from https://www.imf.org/external/pubs/ft/issues/issues25/index.ht