Carbon tax and Cap-and-Trade Schemes Essay Example | Topics and Well Written Essays - 750 words

Carbon tax and Cap-and-Trade Schemes - Essay Example In defining cap and trade system, a government literally puts a cap or limit on the overall level of carbon pollution. As the cap declines each year, it cuts industrial green house emission to the limit of regulation. This way, the government creates and distributes pollution quotas, which in turn create an incentive for industries alike to reduce their emissions (Andrew 64). In comparing the two taxes, the cap-and-trade tax has more certainty than the carbon tax. The cap and trade tax in terms of certainty can be achieved as it sets firm limits on the acceptable amount of emissions, thus achieving the desired outcome in reduction of emissions. This scheme has been used for decades by the United States to reduce emissions responsible for acid rain. By using the cap and trade system has reduced acid rain forming by half. As for the carbon tax the amount of emissions depends on the rise and fall of energy. For this reason many industrialized countries have used carbon taxes to disco urage fossil fuel and promote clean energy. For example, in Sweden carbon tax has been estimated to cut emissions by 20 percent enabling the country to achieve 2012 target under the Kyoto protocol . Carbon tax creates a fixed incentive to curb emissions since it can fix price of the carbon emissions. In assessing the cost or damage associated with each unit in pollution and the cost associated with controlling pollution. In essence its essential for the tax level to be right, if the tax is too low then the industries and households may opt to pay tax other than reduce omissions. On the other hand, if it’s set too high then the cost may indirectly impact profits, jobs and the end consumers. Cap and trade lacks price certainty since emissions permit prices may fluctuate from year to year depending on the demand for energy. This means that while the maximum pollution quantity is set in advance trading price on permits