Carbon Tax vs. Cap and Trade


Over the past couple of years there has been a lot of talk about implementing a carbon tax or a cap and trade system. Essentially, these are two sides of the same coin when it comes to combating the amount of CO2 we release into the air, but there are some differences we need to consider before implementing one.

A carbon tax is pretty self-explanatory; it’s simply putting a price tag on carbon emissions. Finland was the first country in the world to put forth a carbon tax, roughly $25 per ton of CO2 in 1990.

The theory behind the carbon tax is that it provides an incentive for businesses to start using cleaner fuels, as it becomes too expensive to continue polluting carbon into the atmosphere.

Cap and trade on the other hand, aims to put a limit on how much companies can pollute.

“The cap on greenhouse gas emissions is a limit backed by science,” according to the Environmental Defense Fund. “Companies pay penalties if they exceed the cap, which gets stricter over time. The trade part is a market for companies to buy and sell allowances that permit them to emit only a certain amount. Trading gives companies a strong incentive to save money by cutting emissions.”

The EDF says the cap and trade system is the “best shot” economically and environmentally in reducing emissions contributing to climate change.

While both measures are praised by environmentalists, there are some drawbacks.

For cap and trade, effectively measuring out emissions can be extremely difficult to do and time consuming, not to mention companies may find ways to cheat the system, much like Volkswagen infamously did with their cars.

Another drawback is that some proposals call for larger companies to receive more permits since they emit more pollutants, which just defeats the purpose of the policy.

When it comes to a carbon tax, many argue that it will hurt small businesses who cannot afford to make the transition to clean energy, but also can’t afford to pay the tax. Another argument is that it’s a tax that extends to everyone who pollutes. So yes, that means you could be paying a tax for driving a high polluting car.

Both of these plans are heavily discussed among environmental scientists and environmentalists alike, as being one of humanity’s best hopes for reducing global CO2 emissions.

Dr. James Hansen, former head of the Goddard Institute for Space Studies, perfectly sums up the necessity to make the rapid change to renewable energy.

“If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from [current levels] to at most 350 ppm.”

Recently, we passed the 400 ppm mark, and we need to discuss the negative externalities of climate change and the cost on humans that isn’t being paid.

The EPA estimates that in 2014, 57 million people live in counties that don’t meet national air quality standards. Additionally, increasing temperature changes can cause a wide variety of adverse effects such as asthma, increase in wildfires, droughts and more.

A carbon tax and cap and trade are two ways that damages can be paid for. Money from the carbon tax could go to renovating infrastructure to make buildings more economical, insulating buildings so heat and cool air don’t escape, using LED lights and low-flush toilets, for example.

The cap and trade allows the market to decide who gets to pollute and how much, while simultaneously cutting back on pollutants each year and creating incentives for companies who do cut back.

Both systems are obviously not perfect, but scientists agree that if we do not act now to curb how much we pollute, we will push past the point of no return; and by 2040, 33 countries will experience high water stress levels, the U.S. being one of them.

By implementing both a carbon tax and cap and trade, I believe that we can take the global leadership role in moving towards a better, cleaner future.

Kyler Jackson is a sophomore in political science. The views and opinions expressed in this review are those of the author and do not necessarily reflect the official policy or position of the Collegian. Please send comments to