Emissions Trading Scheme Is a Better Policy Instrument than a Carbon Tax in Tackling Climate Change - Essay Example

? An Emissions Trading Scheme is a better policy instrument than a Carbon Tax in tackling climate change? ‘An emissions trading scheme is a better policy instrument than a carbon tax in tackling climate change.’ Increasing pollution has actually given rise to intense climatic change which is subsequently affecting the human civilization. Pollution may be caused by different elements such as emission of toxic materials into the air or water streams. Industries have greatly participated in the overall increase of air pollution and hence people and governments all over the world have been seriously concerned about formulating such programs and schemes which might prove fruitful in tackling this challenge. Two of the most widely accepted instruments in this regard are: ‘Emissions Trading Scheme’ and ‘Carbon Tax’ (Van Asselt, 2010, p.126). Both of them are being utilized by the government in order to reduce toxic emission in the natural environment. However, the government has only limited the amount of emissions rather than solving this issue from the roots. Emissions trading scheme allows the industries to release a certain amount of pollutants in to the air. It is basically a market based approach which is supported by economic incentives (Cass, 2005, 38). When a firm successfully reduces its emission of pollutants then it is most likely valued by the government. In contrast to this the carbon tax is a mere pricing strategy according to which households and firms are supported to control pollution with the implementation of various technologies and plantation. In this case the firms have to pay a certain amount of tax because of burning fossil fuels or causing gas pollution (Eckersley, 2010, p. 367). This paper aims to critically evaluate the effectiveness and efficiency of both the pollution controlling strategies while supporting the claim that emissions trading scheme is significantly better policy instrument than the carbon tax in reducing and tackling the climate change. Investors, traders and the industrial project developers are the major participants of all the economic activities. However, the continuous gas and pollutants’ emission from different industrial sectors have immensely contributed to the deterioration of climate and the natural habitat. Moreover, pollution most likely arises because the polluters are not given any property rights and hence formerly there was significantly less government intervention into the activities of polluters. Later it was found necessary to control the pollution emission by different industries to support the economic operations and also to ensure healthy living standards. Emissions Trading Scheme operates on a simple approach of spreading benefits and sharing costs of pollution. Broadly it is defined as the trade of pollution entitlements i.e. the firms are allowed to buy permission of emitting pollutants up to a certain limit and then if they require releasing more toxic agents in to the air then they are supposed to purchase entitlements from other firms emitting fewer pollutants. Hence the overall procedure is also termed as ‘cap and trade’ where cap stands for limiting the amount of emission while trade refers to buying and selling of entitlements (Newell, 2010, p. 96). Critics view the emissions trading as a more sophisticated attempt of controlling the climate change primarily because it covers all the industries and firms while limiting the amount of pollutants and effectively tackling climate change. This approach also plays a vital role in calculating the business and economic activities of different organizations while sharing their benefits and costs among the entire population (Newell, 2010, p. 96). Bachram emphasizes upon the importance of the research and analysis of International Scientific Community so as to comprehend the different features of gaseous emission and how it impacts our ecology. This is then related with the effectiveness of emissions trading scheme and how it is meeting this challenge. Research reveals that the carbon emissions have actually increased in the last 420,000 years which is not comparable with the insignificant amount of carbon release in last 20 million years (Bachram, 2004, p. 3). This reflects that the responsibility of huge climatic changes cannot be laid only upon the modern industries but it has a close affiliation with the ancient civilizations as well. Additionally, today the household and other different economic sectors hold the substantial risk of flood because the climate change and emissions of pollutants have increased the sea level. The emissions trading actually reduce all these risks and hence there are numerous benefits associated with its implementation. Today polluters do not utilize their complete share of emission entitlements rather they minimize it to a required level and sell the remaining permit to another polluter. In this way not only the adverse impacts of carbon emission are reduced but it is also helping in the generation of greater revenues. Moreover, the pollution allowances can be bought or sold on the international level which further supports in tackling the global climate change (Bachram, 2004, p. 3). Carbon pollution reduction scheme was a substantial step taken by the Australian Government in order to tackle the climate change while performing its role in formulating a global solution for pollutant emissions (Australian Government, 2008). Environmental taxation or the Carbon tax has been introduced in different countries around the world including Denmark, Germany, Finland, Austria, Japan, UK etc. Its primary objective was to control the prices of energy while reducing the harmful effects of burning fossil fuels (Biermann, 2005, p. 290). Decarbonization plays a substantial role in the sustenance of international political economy and offset governance while supporting clean development of the industrial sector (Bumpus, 2009, p. 128). Carbon Tax represents an environmental taxation policy which was primarily designed to meet the challenges of modern day climatic changes. According to it industries are obliged to pay certain amount of taxes in return to the pollutants they are releasing into the air (Monbiot, 2006). The approach of Carbon Taxation is applicable and beneficial for the entire population with few restrictions, for instance, it negatively limits the business activities of poor or moderately rich industries. Investors who face immense difficulties in matching their corporate finances are overburdened by the carbon tax which subsequently forces them to limit their business. In comparison to this the industries with significant finances can create more and more pollution without any restrictions or limitation on the amount of pollutants released (Smith, 2007, p. 61). Monbiot recognizes the carbon tax as an utterly immoral activity because according to him this gives a privilege to the firms that they can deteriorate the ecology through whatever means they can while compensating it with some financial taxes. This does not seem appropriate for the healthy existence of human civilization even after realizing the intense outcomes of carbon emission. Hence the government and concerned authorities must develop a more applicable plan for the reduction of carbon emissions (Monbiot, 2006). Both Emissions Trading Scheme and Carbon tax have played significant role in reducing the overall release of pollutants into the air despite of some disadvantages. For instance, Hayward argues that different approaches towards reducing the climate change and the harmful impact of carbonization have actually led to a position where human rights are given less consideration as compared to the rights of emissions(Hayward, 2007, p. 432). According to him carbon emission or the discharge of any other toxic element into the natural habitat carries substantial health hazards for the entire mankind and all other living organisms. Therefore it is significantly inappropriate for the government and industries to compensate the loss of climate through some carbon tax. The situation is somewhat similar in case of emissions trading scheme where firms are actually given the lawful right of deteriorating the climate. Hence it would be more suitable to equally share the responsibility of climate change while spreading the overall emissions cost. This can be done through suitable intervention in the emissions trading scheme. Moreover, the perfect right of emissions should be incorporated with the human rights so that the firms and different industries can evaluate the impact of their business activities on the ecological system (Hayward, 2007, p. 432). Research indicates that the international climate policies are now dominated by the carbon tax which is turning out to be a huge global market. However, it does have some disastrous impacts over the climate. Critics evaluated that the Emissions Trading Scheme has proved significant in reducing the carbonization and release of toxics in to the air. But the United Nations Clean Development Mechanism has been supporting the unjust and unethical practices such as carbon tax to tackle the climate change (Gilbertson, 2009, p. 14). On the whole the emissions trading or carbon tax has benefitted the firms which are now increasing their revenues with the reasonable manipulation of these laws. Another important factor which cannot be ignored is that the knowledge of controlling climate change is so limited that policy makers cannot adopt any other effective methodology to tackle this issue hence the productivity of both carbon trade or carbon tax cannot be underestimated. Researchers now agree that climate change cannot be restored without the implementation of emissions trading scheme. This is further supported by the positive impacts of carbon trading. Although this particular approach has increased the climatic challenges for mankind but on the whole it has reduced the carbonization. Hence it can be said that emission trading scheme has proved beneficial for tackling climate change with minimal compromise on the human rights (Gilbertson, 2009, p. 14). In order to understand the climate change or the impact of pollutants on the overall environment it is important to understand the core drivers of environmental crisis. Goodin in his research article critically discusses the impact of economic activities on the deteriorating state of environment. He stresses upon the basic principle of macroeconomics that people have to pay certain amount so as to consume a product or to utilize any service. This compensatory amount is sometimes paid directly by the consumers or at times the manufactures or the producers are responsible to pay for their harmful business activities. Environment in terms of property resources basically consists of the few fundamental necessities including fisheries, clean water streams, harmless air, the ozone layer etc. (Goodin, 1994, p. 573). All these core factors are also the part of climate and hence no human being can challenge one another on consuming or utilizing the climate for their business operations as they are naturally available to everyone without any ‘taxes’. However, when initially firms started utilizing the climate they released significant amount of pollutants in to the air which subsequently affected the natural environment. This further worsened the living conditions for human beings. Only then the government and other concerned authorities realized the importance of climate and its immensely changing state. Hence they were convinced to introduce such legal and economic policies which can compensate the environmental loss. As a result Emissions Trading Scheme and Carbon Tax were imposed on huge corporations (Goodin, 1994, p. 573). Primarily there are three Kyoto Flexible mechanisms which have been controversial since their initial implementation on the basis of business rights, human rights and the climatic crisis. These include: the clean development mechanism, emissions trading scheme and the joint implementation (Hepburn, 2007, p. 376). Advocates of all these approaches have argued that the Kyoto mechanisms can play a vital role in achieving the desired environmental outcomes through investing least cost. Contrary to this the opponents argue that these mechanisms have turned the climate into a commodity and therefore people are engaged in harmful activities only by purchasing a mere right to do so. In the contemporary world the Kyoto mechanism has become fully operated in the developed countries despite of serious doubts attached to its overall stability in terms of environmental benefits. Hence the coming years would reveal more significant information about the effectiveness or efficiency of the emissions trading scheme (Hepburn, 2007, p. 376). To evaluate and compare the emissions trading scheme with the carbon tax one should be aware of the core objectives of policy makers i.e. either these environmental policies were formulated to tackle the climate change and reduce carbon emission or their primary objective was only to ‘limit’ the climate change. This is substantial to know because only then the critics of this particular subject can reach a conclusion. Research reveals that although carbon tax has increased the international trade but on the whole the environmental strategies hardly give any regard to the loss of equity and the climate change (Kemfert, 2002, p. 23). This is because they are not formulated to tackle these issues rather their immediate concern was to stop the firms from creating further pollution through their business activities. Hence the lost environmental features were not the focus of either carbon tax or the emissions trading scheme. This subsequently makes the evaluation insignificant on the basis of human rights or carbon consumption and therefore the discussion is restricted only to the benefits of different policy instruments related to international trade and massive release of pollutants into the air (Georgiev, 2010, p. 2). Let’s consider an example of oil, coal or gas mining in which there is an intense use of fossil fuels which strongly damages the climate. Due to the increasing dangers of the mining activities and to control the discharge of pollutants in to the air, government has imposed the carbon tax on the associated businesses. The desired outcomes of implementing this strategy were to burden the polluters with the significant amount of taxes so that they might control the release of toxic materials. However, in real the carbon tax gave them an immense opportunity to increase their activities while compensating it with the tax. Ethically this was something really wrong and beyond the fundamental human rights (Lohmann, 2006, p. 5). But in terms of international trade this proved to be a significant step as producers started to generate greater revenues with an increased mining activity. Needless to mention that the revenues were substantial enough to bear the burden of additional taxes i.e. on the whole the carbon tax did not persuaded the polluters to consider its everlasting harmful effects on the climate. This situation is also known as the fossil fuel crisis. Critics believe that the implementation of carbon tax has actually triggered the deterioration of climate and the natural habitat because it has primarily failed to induce a sense of responsibility into the polluters. Here the damaging environment does not only include the air and water pollution rather it incorporates the agricultural system, forestry, increasing sea level and the social issues (Lohmann, 2006, p. 5). Peck identifies it as an apology to the carbon sins. In his article on the ‘Carbon Offsetting’ he argues that carbon offsetting is basically the payment for removing carbon from the atmosphere rather than reducing the overall carbon emission (Peck, 2008). Emissions trading received immense recognition after implementation of Kyoto Protocol back in 1997. Kyoto Protocol was actually designed to tackle the climate changes without incurring additional costs (Ott, 2002, p. 159). Emissions Trading Scheme is often regarded as the best alternative of the carbon tax because it has successfully restricted the activities of polluters. For instance, previously polluters were allowed to carbonize our natural environment and then compensating it through an insignificant carbon tax but the carbon emission enforced them to first purchase the permission of releasing pollutants in to the air. This proved immensely beneficial in tackling the climate change. Moreover, it also benefitted in the international trade where huge corporations started purchasing the carbon permit of other countries while selling them at a higher rate to the needy organizations. It can be said that today emissions trading has reached to a status of a valuable commodity business. However, despite of various economic, political, social and ecological benefits attached to the emissions trading scheme critics have identified various lapses in the approach and implementation of this strategy. For instance, ethics and moral conduct are missing from the carbon trade (Baumert, 2003, p. 138). Emission trading scheme ensures the just and fair division of increasing carbonization responsibility. Moreover, it has been found beneficial in meeting the equity concerns of a nation. However, the implementation of carbon trading on the international level is still a significant challenge for the government officials because many under developed countries are still lacking the fundamental setup required to establish it. In addition to this they don’t have minimum knowledge about the equity concerns attached to the carbon trade (Pan, 2003, p. 1). Along with the emissions trading scheme there is another emerging solution for the climate change and that revolves around Contraction and Convergence. This program was initially designed in the 1990s by the United Nations Organization to fight against global warming. It works on few fundamental principles including survival and equity. In addition to this it has a greater emphasis over the precautions taken in regard of the increasing climate change (Meyer, 2000, p. 12). Contraction and Convergence accompanied with other strategies based on moral principles can actually help in tackling the environmental issues. These strategies will also strengthen the implementation of emissions trading scheme. Hence it can be concluded that the technological advancements and the overall industrial revolution have given rise to the intense climatic problems. For instance, global warming has resulted due to the use of chemicals and toxic elements. This continuous climate change is actually imposing substantial threats over the existence and sustenance of human life. Therefore, government associations and other policy makers were persuaded to introduce such instruments which could resist the pollution in addition to positively tackling the climate change. Emissions Trading Scheme and the Carbon Tax were the two major policies implemented in the 1990s in response to the deteriorating climatic conditions. Although both of them were successful in manipulating the attitude of polluters but the Emissions Trade became more popular and generated more substantial results in reducing the climate change. This was primarily because it permits an individual firm to release only a certain amount of pollutants in the air. The emission entitlement has to be purchased while the remaining emission capacity can be sold to another firm. Carbon Tax could not achieve the desired outcomes of tackling the climate change because according to this instrument industries were allowed to pollute the external environment and later the damage was compensated by the insignificant tax amount. Therefore, critics have also named the carbon tax as an apology to the sins. This finally substantiates that Emissions Trading Scheme is a significantly better policy instrument to tackle the climate change. References Australian Government. 2008. Carbon Pollution Reductions Scheme: Australia’s Low Pollution Future, draft, 15 December, Department of Climate Change, Canberra, viewed 26 Sep 2013, Bachram, H. 2004. Climate Fraud and Carbon Colonialism: The New Trade in Greenhouse Gases, Capitalism, Nature, Socialism, vol. 15, no.4, pp. 5-20. Baumert, K.A., Perkins, J.F. and Kete, N. 2003. Great Expectations: Can International Emission Trading Deliver and Equitable Climate Regime? Climate Policy, vol. 3, pp. 137-148. Biermann, F. and Brohm, R. 2005. Implementing the Kyoto Protocol without the United States: The Strategic Role of Energy Tax Adjustments at the Border, Climate Policy, vol. 4, pp. 289-302. Bumpus, A.G. and Liverman, D. 2008. Accumulation by Decarbonization and the Governance of Carbon Offsets, Economic Geography, vol. 84, no. 2, pp. 127-156. Cass, L. 2005. Norm Entrapment and Preference Change: The Evolution of the European Union Position on International Emissions Trading, Global Environmental Politics, vol. 5, no.2, pp. 38-60. Eckersley, R. 2010. The Politics of Carbon Leakage and the Fairness of Border Measures, Ethics & International Affairs, vol. 24, no. 4, pp. 367-393. Egenhofer, C. and Georgiev, A. 2010. Benchmarking in the EU: Lessons from the EU Emissions Trading System for the Global Climate Change Agenda. Brussels: Centre for European Policy Studies. Gilbertson, T. and Reyes, O. 2009. Carbon Trading: How It Works and Why It Fails, Critical Currents, No 7, Dag Hammarskjold Foundation Uppsala, viewed 26 Sep 2013, Goodin, R.E. 1994. Selling Environmental Indulgences, Kyklos, vol. 47, pp. 573-96. Hayward, T. 2007. Human Rights versus Emissions Rights: Climate Justice and the Equitable Distribution of Ecological Space, Ethics and International Affairs, vol. 21, no. 4, pp. 431-50. Hepburn, C. 2007. Carbon Trading: A Review of the Kyoto Mechanisms, Annual Review of Environment and Resources, vol. 32, pp. 375-93. Kemfert, C. and Tol, R.S.J. 2002. Equity, International Trade and Climate Policy, International Environmental Agreements: Politics, Law and Economics, vol. 2, pp. 23-48. Lohmann, L. 2006. Carbon Trading: A Critical Conversation on Climate Change, Privatisation and Power, Upsalla, Sweden: The Dag Hammarskjold Centre. Meyer, A. 2000. Contraction and Convergence: The Global Solution to Climate Change. Dartington: Green Books. Monbiot, G. 2006. Selling Indulgences, The Guardian, 18 October. Newell, P. and Matthew, P. 2010. Climate Capitalism: Global Warming and the Transformation of the Global Economy. Cambridge: Cambridge University Press. Ott, H.E. and Sachs, W. 2002. The Ethics of International Emissions Trading in L. Pinguelli- Rosa and M. Mohan (eds.), Ethics, Equity and International Negotiations on Climate Change, Edward Elgar, Cheltenham, UK, pp. 157-78. Pan, J. 2003. Emissions Rights and their Transferability: Equity Concerns over Climate Change Mitigation, International Environmental Agreements: Politics, Law and Economics, vol. 3, pp. 1-16. Peck, J. 2008. Carbon Offsetting: Forgive My Carbon Sins’, The Ecologist May 2008. Smith, K. 2007. Carbon Trade Watch. The Carbon Neutral Myth: Offset Indulgences for Your Climate Sins, Amsterdam: Transnational Institute. Van Asselt, Harro. 2010. Emissions Trading: The Enthusiastic Adoption of an “Alien” Instrument’ in Andrew Jordan, Dave Huitema, Harro Van Asselt, Tim Raynor and FransBerkhout (eds), Climate Change Policy in the European Union: Confronting the Dilemmas of Mitigation and Adaptation? Cambridge: Cambridge University Press, pp. 125-144. Read More