Climate patterns of the world are therefore changing with the increase in carbon emission, especially by the industrialised nations such as the US, China, and the European Union. This problem brings the need for controlling of how industries and countries manage their carbon emission. Several intervention measures have been put up to control carbon emission. Some of these measures include carbon tax, cap-and-trade, carbon pricing, carbon credit, emission trading, personal carbon trading, and carbon diet. This paper explores the first two approaches to carbon emission, namely carbon tax and cap-and-trade. Specifically, it will evaluate them and show how they compare.
Carbon Tax
According to Metcalf, carbon tax refers to any tax that is levied on fuels according to their carbon content. Carbon tax is charged depending on carbon evaluation results. Hence, it varies per fuel. Carbon tax is one form of carbon pricing that has been adapted by most of the industrialised countries in an effort to regulate carbon emission. Metcalf observes that all hydrocarbons contain carbon2. Therefore, all fuels that come from hydrocarbons emit carbon dioxide gas into the environment upon combustion. Since the gas causes a greenhouse effect
, environmental scientists recommend carbon tax as an intervention measure. According to Strand, carbon tax is aimed at preventing global warming3. It provides a cost effective method of minimising the emission of greenhouse gases. The greenhouse gas that is emitted by fossils as they burn is an indicator of the amount of carbon that a particular fossil fuel contains. Carbon tax is levied at any stage of its cycle.
Cap-and-Trade
Cap-and-trade is also referred to as emission trading. According to Hasegawa and Salant, cap-and-trade refers to the placing of legal limitation on the amount of pollutants that an industry can emit4. Cap-and-trade offers economic incentives to industries or economies that are able to minimise their pollutant emissions. Cap-and-trade has been adapted by various countries of the world in their effort to contribute to the reduction of greenhouse gasses that their industries emit to the atmosphere. Individual governments of different countries carry out regulation of pollutant emission. Governments are charged with the responsibility of setting the cap on pollution amount within their jurisdiction. This cap regulates the amount of pollutants that different industries can emit into the environment.