The adverse effects of environmental degradation are not in question anymore due to the numerous researches that have consistently proved that humans are the primary cause of ecological disasters. However, the approaches employed to mitigate the same have instigated debate on the best method to adopt based on cost and efficiency. It is crucial to evaluate two methods currently in use that include cap and trade and the carbon tax with a critical lens to establish the most effective structure to address climate change. To begin with, cap and trade have been championed by environmental conservationist as the panacea for self-regulation concerning corporate organizations that have been blamed for the current ecological quagmire (Durning, 2008). Ideally, the system operates through the issuance of permits to commercial agencies by government agencies that set a threshold on the amount of pollution that can be released into the air. In the event, an entity exhausts its limits; it can buy licenses from other enterprises, which encourages the organizations to trade. Fundamentally, the limits set are relatively small, which is designed to support firms to reduce pollution. Importantly, the scheme provides incentives to organizations to reduce their quota of pollution and sell the permits to other companies that have met their limits leading to financial gain. Ideally, the plan seeks to tax firms that are unable to adhere to the set limits heavily, thus discouraging environmental destruction.
On the other hand, the carbon tax is another method that has been utilized in various parts of the world with mixed results. Carbon tax represents a penalty or fine that is levied on the quantity of carbon in fossil fuel (Marron, Toder, & Austin, 2015). Notably, carbon emissions have been blamed for environmental destruction, especially considering that fossil fuels represent a large percentage of pollution emitted in the ozone layer. The approach is premised on two arguments that include social cost since the largest polluters fail to compensate the broader community that is affected by their actions. Equally, economic theory is another element that informs the strategy since it acts as a form of tax imposed on a specific group that would otherwise not be under the realm of a command and control statute. Most importantly, carbon tax seeks to discourage polluters from emitting harmful gases into the environment through levies that will force the affected firms to innovate new ways of production.
It is incumbent to conduct an in-depth analysis of the efficacy of both systems to deduce the best approach to use in climate control. As earlier mentioned, cap and trade rely on permits to regulate pollution that is unique since most authorities have set the licenses on a reducing system. In other words, the quotas allocated are reduced gradually to allow firms to comply with minimum emission targets. Consequently, most environmental organizations purchase the permits and retire the same forcing companies that have exhausted their limits to incur extra costs, which is not sustainable in the long term.
Regarding carbon tax, the concept is effective in reducing emissions in the air due to the penalties levied on violators. Nonetheless, critical evaluation reveals that the approach is self-defeatist since large companies, especially multinationals, can pay the taxes, which can encourage them to continue with detrimental production practices since they can afford the fines. Ideally, the structure should not provide any alternative other than total compliance to polluters. Consequently, the cap and trade method is more effective in comparison to the carbon tax system.
Economically, the two approaches have positive outcomes, but one is better in comparison to the other and more likely to enhance environmental conservation. Cap and trade is known to work on a reducing balance, which means the permits become scarce leading to the generation of revenue since the prices of licenses rise (Goulder & Schein, 2013). To avoid extra expenses, organizations must develop innovative ways to reduce their emissions in the environment. In relation, the trading of licenses can act as a source of revenue for institutions that adhere to environmental protection policies, which results in a multi-pronged effect thereby increasing profits and protection of nature.
Carbon taxes are also effective in reducing pollution. Besides enhancing revenue, the system is prone to abuse (Anderson, 2017). Levying of taxes on carbon pollution is challenging considering the dispersed nature of organizations in the world. Notably, companies that can afford to pay the fines engage in counterproductive actions. Therefore, cap and trade is the best method in combating pollution in the world.
Politically, the two systems have proponents and opponents in equal measure with supporters of the cap and trade concept stating that the method is socially acceptable, which increases its acceptability. However, pundits claim that the methodology is fraught with dangers that include extortion since some organizations hoard the permits for financial gain. Supporters of carbon tax argue that the approach is efficient since it discourages people from emitting excess carbon into the air (Goulder & Schein, 2013). Nonetheless, opponents posit that the method is nascent and has not been tested thoroughly to determine its efficacy. When viewed with the best outcome, the cap and trade strategy is likely to be adopted by Congress due to its potential to reverse environmental degradation. Personally, I would recommend the utilization of the cap and trade method since it is self-regulatory and promises to eliminate carbon emissions. In fact, the system is mostly attributed to the successful mitigation of acid rain in the United States that can be transferred into carbon question currently wrecking havoc in the globe.
- Alan Durning. (2008). Cap and Trade 101 A climate policy primer. Sightline Institute.
- Donald Marron, Eric Toder, and Lydia Austin. (2015). Taxing carbon: What, why, and how. Tax Policy Center.
- Julius Anderson. (2017). Cars, carbon taxes and CO2 emissions. Centre for Climate Change Economics and Policy.
- Lawrence Goulder & Andrew Schein. (2013). Carbon taxes Vs. Cap and trade: A critical review. World Scientific Publishing Company.