The Policy Greenhouse

Pros and Cons of Carbon Pricing and Taxes

The use of both carbon pricing and taxing have aided nations in slowly limiting emissions from businesses to ensure that there is sustainable growth with minimized carbon footprint. Carbon Taxing’s appeal lies in its simplicity in a system that runs off of price signaling which leads to government revenue generation. Carbon taxes are directly put on Carbon Emissions, which makes it more and more expensive for businesses to directly emit more pollutants into the atmosphere. This is expected to disincentivize the growth of emissions in America as well as increase in government revenue generation. However, there are a few drawbacks, with drawbacks ranging from issues in equity effectiveness to price volatility as well as lack of environmental effectiveness. These carbon taxes have not been shown to equitably affect large polluters who have the means to get tax breaks. Instead, the carbon taxes have resulted in poorer families and communities having to pay a larger portion of their total income compared to large polluters due to the presence of tax loopholes. The presence of these loopholes have also resulted in a lack of effectiveness when it comes to enforcing the carbon tax in a way that completely forces businesses to avoid costs by emitting less carbon. 

The adaptability and protection of standards within a Carbon Pricing within a cap and trade system is where this system beats out carbon taxes. Through setting a totally hard limit of the amount of total emissions allowed in a nation or state, this policy ensures that there is a gradual reduction in emissions across the board, with no changes in the limit hinges on the use of tax breaks and other loopholes. This success has been seen in the UK, as the Grantham Institute reports that the carbon pricing model has effectively reduced carbon emissions across the board while minimizing potential negative economic effects. This means that they have either been able to grow economically while reducing the amount of energy they use, or that they have slowly been able to facilitate a switch to renewable energy technologies that they were effectively pushed into doing through being forced to comply with the carbon pricing cap. 

Potential Future Impacts of Carbon Pricing

There are a few issues that may come up with the implementation of the carbon pricing system. For example, to ensure the added benefit of the harsh limit of emissions, there will need to be intense monitoring of all emissions to ensure that no one slips by in emitting more carbon than they are allowed so that the gradual emission decrease occurs. Another aspect of the pricing that needs to be straightened out is the relationship between the cap and market volatility. Because of market volatility, the cap will most likely need to be adjusted over time. One part of adjusting it to s sustainable and agreeable rate is finding that perfect cap that ensures a slow decrease in carbon emissions but also allows for economic growth. This is semi-reliant on the switch to renewable energy. There will most likely be more leeway in terms of increasing the cap on emissions relative to atmospheric conditions if there is more sustainably generated electricity. All in all, the Carbon Pricing switch is a policy change that should be passed in conjunction with the building of the sustainable energy industry in order to ensure a sustainable future.

Sources:

https://www.lse.ac.uk/granthaminstitute/news/how-robust-is-the-evidence-on-carbon-pricing/, https://ourworldindata.org/carbon-price, https://theconversation.com/carbon-pricing-works-the-largest-ever-study-puts-it-beyond-doubt-142034, https://www.oecd-ilibrary.org/sites/0e8e24f5-en/index.html?itemId=/content/publication/0e8e24f5-en