Essay About Carbon Taxation

Carbon Tax Vs. Cap And Trade

“All across the world, in every kind of environment and region known to man, increasingly dangerous weather patterns and devastating storms are abruptly putting an end to the long-running debate over whether or not climate change is real. Not only is it real, it's here, and its effects are giving rise to a frighteningly new global phenomenon: the man-made natural disaster.” BARACK OBAMA, speech, Apr. 3, 2006. Climate change is not a theory contrary to what many individuals believe and is in fact confirmed by major scientific agencies such as the National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautics and Space Administration (NASA) in the United States. Global Warming causes are mainly due to greenhouse gases that are trapped in the atmosphere and cause depletion of the earth’s ozone layer. Carbon Dioxide is a greenhouse gas, and although it is a necessary component in our atmosphere as it helps plants perform photosynthesis, too much of it causes ozone depletion and therefore climate change. Carbon Dioxide levels in the atmosphere have increased tremendously after the industrial revolution, which indicates that the major cause of this issue is due to anthropogenic activities.

The issue presented in this paper is how one can aim to reduce the amounts released, and what the best ways to solve this problem are. This has been long debated amongst scientists, businessmen, Industry-owners, and politicians amongst many other eminent figures in society. The four major approaches to reducing carbon dioxide in the atmosphere include: subsidies of alternative energy, cap and trade, carbon taxes, and command and control regulation. We will examine and compare the effectiveness of two of these methods: The carbon cap and trade system, and carbon taxation.
The popular solutions both propose placing a price on Carbon Dioxide, in hopes that it would cause households and industries to reduce their greenhouse gas emissions. Government enacted solutions are probably the most effective ways to reduce carbon emissions and to control pollution since unfortunately the majority of individuals mainly act to their own self-interest and are not concerned with the future of the planet. This is a prime example of the tragedy of the commons, which is the exploitation of a common resource. In this case the common resource is the atmosphere. The first method proposed is the carbon cap trade system. The term cap means the limit or the maximum of the amount of pollutant to be emitted. A trade refers to the transfer of permits that have to be bought by firms that need to increase their volume of emissions from firms that require fewer permits 1. The carbon tax method is a tax on the carbon content of fuels — effectively a tax on the carbon dioxide emissions from burning fossil fuels 2. So, which system would be best for the government to enact to reduce carbon emissions in the atmosphere?
First we should understand how the carbon cap and...

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The introduction of the carbon tax in Australia.

Recently, the carbon tax issue has been gaining increasing attention in Australia due to its function of reducing greenhouse gas as well as its extensive economic impacts on a range of industries, such as tourism and hospitality. The conceptual meaning of the carbon tax is “a levy applied to various operations that generate carbon dioxide” (Covey, 2009, p.329). Such a tax is introduced to achieve a desired national emission target (Covey, 2009).

The introduction of the carbon tax in Australia is derived from the serious environmental issue of climate change. According to The Economist (2011), Australia's emissions measured on a per capita basis are the largest of any developed…show more content…

It is important to focus on such inter-sectoral effects when examining the impacts of the carbon tax in an open-economy context. This is because “the higher price in the environment-intensive industry will induce spillovers to other markets and industries which produce substitutes or complements” (Amin, 2009, p.333). For example, the carbon tax will impact on the natural resource market through effects on the demand for substitute resources such as solar power and nuclear fuel. Similarly, the carbon tax will reduce demand for inputs which are complementary to the burning of carbon-intensive energy, such as fossil fuels (Clarke, 2011).
2.2. Assessment model.
In order to assess the future economic impacts of the carbon tax, the CGE model (Computable General Equilibrium models) can be introduced. This model is widely used as a standard tool for the quantitative analysis of environmental policies, such as the carbon tax, in terms of their costs and benefits (Löschel, 2006). This is because the CGE model can “provide answers on the economic effects of changes of the introduction of new taxes or subsidies in a coherent and consistent way” (Amin, 2009, p.334). Based on the general equilibrium theory, CGE model is a standard tool to assess the future impacts of the carbon tax since any

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