Carbon cap or tax?
and-trade program is that the science today is indicating there are tipping points in the atmosphere As the debate over how best to curb ers, such as power plants, and diwhere you get a concentration greenhouse gases heats up, a lot of vides the allowed emissions into of CO2 that could actually cause attention is being focused on the 1 t shares of CO2. The shares are some very abrupt climate change,” price of emitting 1 metric ton (t) of either sold or awarded to polluters she says. In addition, ancillary eviCO2. Opposing camps have taken up to an annual limit. Companies dence indicates that businesses are strong positions on setting the price that drop below the limit can sell more likely to reduce emissions if through a carbon tax versus a captheir excess shares to companies they have to hold a permit rather and-trade program. Whichever systhat emit more than their reguthan pay a tax, Peace says. tem is chosen, getting an early start lated thresholds. Market demand However, a carbon tax would and setting a strong be the most efficient price signal are cruand easiest way to cut cial to achieving steep emissions, according cuts in greenhouse to a new report from gas emissions without the U.S. Congressioharming the economy, nal Budget Office. Beexperts say. cause climate change The world must inis a cumulative provest about 1% of global cess, it doesn’t matgross domestic prodter whether CO2 is uct (GDP) by 2050 to reduced by an exact stabilize greenhouse amount each year, as gas levels at 500–550 long as it declines over parts per million, actime. In contrast, the cording to the Stern cost of cutting emisReview report, the first sions has a lot of volamajor analysis of the tility from year to year global costs of emitbecause it is driven ting carbon. By making by factors like energy it expensive to pollute, prices, the report says. both pricing systems A steadily rising tax provide an incentive to Experts continue to debate how best to reduce CO2 emissions. would accommodate make that investment. cost fluctuations while In Canada, for example, a recent determines the share price, which providing an incentive to make analysis by the National Round will increase as regulators ratchet ambitious emission reductions Table on the Environment and the down the cap over time. This syswhen the cost is relatively low, the Economy (NRTEE) forecast that tem provides certainty about emisreport says. if the price of CO2 rose from $20/t sions levels while allowing the “The problem with a tax is that beginning immediately to $200/t price to fluctuate. it’s difficult to implement politiby 2050, Canada’s emissions would In contrast, a carbon tax fixes cally,” says Karen Palmer, an econdrop 60% below current levels over the price of carbon while allowomist at the think tank Resources the next 40 years. ing emissions levels to vary. A carfor the Future. However, it is pos“The models in the new rebon tax would levy a fee on either sible to design a hybrid system that port predicted the cuts could be the carbon content of fuels or the caps emissions, allows trading, achieved at a cost of just 1–3% of amount of CO2 released into the auctions a share of the emissions the GDP,” says Nicholas Rivers, an atmosphere by polluters. Regulaallowances to generate rebates for economist at Simon Fraser Unitors would raise the tax over time, clean-technology investment, and versity (Canada) and a contributor giving polluters an incentive to cut puts a ceiling on the price of CO2 to to the report. NRTEE’s next step emissions. provide cost certainty, she says. is to judge whether a carbon tax Many environmentalists have The systems can be mixed, or a cap-and-trade scheme would thrown their support behind a carbut it is vital that governments perform better and to determine bon cap-and-trade system as the get started and make clear that which is more politically acceptbest way to ensure that greenhouse the price of CO2 will need to be able, says Jill Baker, a senior policy gas concentrations are stabilized, ramped up to $150/t over the next adviser at NRTEE. says Janet Peace, an economist at 25 years if emissions are to drop A cap-and-trade system caps the Pew Center on Global Climate 60% by 2050, Rivers says. emissions from a group of pollutChange. “The reason you do a cap—JANET PELLEY ISTOCKPHOTO
Interview
2714 ■ Environmental Science & Technology / April 15, 2008
