Carbon-Tax and a Cap-and-Trade Strategy

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Distinguish between a carbon-tax and a cap-and-trade strategy for reducing carbon dioxide and other so-called greenhouse gases (that are believed by many scientists to be causing global warming). According to the case, the carbon-tax and a cap-and-trade system are the best economic tool to employ to reduce emissions. As we know, taxes are the most important expense for a company or firm, if they would emit much more carbon dioxide and other gases, they need to pay more taxes on using carbon recourses. It is stated (Bubna-Litic & Chalifour 2012) that ‘One of the defining features of carbon taxes is that they generate a relatively clear and predictable stream of revenue’. The revenue can be used in many different ways and a key issue is how that revenue is used. For instance, the tax expenditures are aimed at improving energy efficiency and this policy has a regulatory goal of addressing climate change that including gases emission. However, cap-and-trade is also leads to prove the efficiency due to the firms are free to trade. Cleetus (2011) argued that carbon prices adjust in keeping with general economic conditions automatically, and price volatility that could lead to greater uncertainty for business investment decisions. It is also mentioned that a transparent carbon market with good regulation and access to emission and trading data for participants. In a word, carbon taxes focus on taxable regulation for firms and cap-and-trade system concentrate on the monitor of carbon usage and the emission trading.

1. Which of the two strategies do you think would have the most political support? Explain your thinking. It is preferred that the carbon taxes strategy would have the most political support. Firstly, government’s intervention makes many possibilities to solve the problems of any spillover cost such as pollution. Government can make some policies and legislated standards that control the economic market directly and effectively. Legislated standards can...
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