Wednesday, May 13, 2009

cap and trade/carbon tax versus the politicians

Limiting carbon emissions isn’t going to save the world, but it isn’t a bad idea. The bigshots have been talking about two slightly different ways of doing this; cap and trade of a carbon tax. Both aim the limit the amount of pollution produced. They do so in a different way though. A carbon tax puts a price on pollution. For every ton of carbon X amount of money must be paid. Once carbon starts costing people money, they will be inclined to create less of it.

Cap and trade focuses on limiting the quantity, or amount of carbon produced. The country (or world, or whatever) as a whole can only produce X amount of carbon. Carbon credits will be created, where firms can produce Y amount of carbon for every carbon credit they have, and these carbon credits can be traded and sold between individual firms.

Both systems attempt to limit the amount of carbon produced. Both also increase the cost of producing carbon, and will make stuff more expensive. Which ever system is introduced is most likely going to be made largely ineffective due to political interests. Grandfathered cap and trade will benefit those who have historically been the largest polluters. If the demand for carbon is inelastic, a carbon tax might not actually decrease the amount of pollution.

Both a carbon tax and cap and trade can be effective, but I certainly don’t trust politicians to make them that way. Industries and wall street will make sure of that. To be politically feasible, any sort of limit on the production of carbon will have to be done in a way which does not impact the economy in a negative way. The most important thing is still to grow, grow, grow and consume, consume, consume. With priorities like that, the air pollution will always be a side issue at best.

However, while it is unrealistic that either cap and trade or a carbon tax will actually do much in terms of slowing climate change or increasing the air quality we breath, the debate is interesting. This article is one of the best, as it has short and simple opinions of a number of different people, from economists to environmentalists.

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