The case for a carbon tax over a cap & trade system in promoting progress to net-zero CO2 emissions.
This article will focus on the merits of a carbon tax and a cap & trade system within the UK context. However the principles of the argument can be applied to contexts outside the UK.
Key Takeaways:
- Carbon pricing mechanisms are needed to reach net-zero by providing an economic incentive to reduce emissions
- A carbon tax is more effective than a cap & trade scheme as its easier to implement, reduces price volatility compared to a cap & trade scheme and can aid progress to net-zero by recycling tax revenues into low-carbon technologies
- Carbon pricing in line with net-zero in the UK would start at £50 per tonne of CO2 in 2020, reaching £75 in 2030 and £160 per tonne in 2050.
- Ultimately a carbon tax is effective in achieving net-zero because of its ability to change behaviour and utilise fiscal revenue.
- However a tax needs to be constructed appropriately to prevent it unfairly targeting the poor.
Following the 2016 Paris Agreement the international community has agreed to prevent global temperatures rising above 1.5 degrees by the end of this century. The realities of climate change mean that reducing emissions and transitioning to low carbon energy sources and reducing energy demand is essential to reaching net-zero. This requires widespread and rapid changes to our energy, industrial, transport and land systems. Meanwhile the UK decided to become the first country in the world to commit to net-zero by 2050 (Mayor, 2018).
In promoting progress to net-zero there is a consensus amongst economic and political communities of the effectiveness of a carbon pricing mechanism in providing a flexible and low-cost approach to reducing CO2 emissions (Van Heerden, 2016). Ultimately it changes the behaviour of consumers and producers by providing an economic signal that reducing emissions is valuable (Van Heerden, 2016). Companies then decide where and how to reduce their CO2 emissions and whether to adopt lower-carbon technologies. This article will start by comparing the two carbon pricing mechanisms, carbon taxes and cap & trade (CT), and then go onto argue why, despite some shortcomings, a…
