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The
debate is over
Challenges to the Economic
Approach:
The Case for Market
Intervention
Free Market Strategies
-What is being regulated?
Carbon
Taxes
Emissions
trading: Cap and Trade
Economic Adaptation
Further
Information
Comments & questions to:
awerth@macalester.edu
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Free Market Strategies
Carbon taxes and emissions
trading are two major strategies that have been put forth to reduce CO2
emissions in a progressive way. Both serve to internalize the
negative externalities of global warming, though they regulate in
different ways and involve varying levels of administrative
control. The fundamental difference is this: Carbon taxes set a
price for CO2 and let the market determine the quantity and emissions
trading sets the quantity for CO2 and lets the market determine a
price. The implications of this difference will come later in
this section. Luckily, there are a number of examples where these
strategies have been used in environmental issues, such as leaded
gasoline, sulfur emissions in coal and the current carbon trading under
Kyoto to regulate carbon. Both of these strategies have infinite
variations and attributes, so the purpose of the following sections
will be to cover the basic challenges and the main arguments for or
against.
What is being
regulated?
Before a discussion of the methods to regulate
carbon dioxide emissions can take place, a defined idea of what is
actually being regulated should be discussed. Since the carbon
emissions we are discussing is not a product, but contained in many
products, there are several methods to go about regulation. The
fuel itself can be regulated via its carbon intensity. This would
mean that the price of a fuel (tax or permit equivalent) would be
altered from the beginning. This method was used with lead fuel
regulation and has the advantages of much lower monitoring and
enforcement costs. Since only the fuels would need to be
monitored the process would be fairly simple. In the case of
carbon emissions, there are a number of fuels with carbon contents and
others with different greenhouse gas emissions that would need to be
regulated. The alternative option would be to regulate at the
emissions side as was done with SO2 emissions. This made sense
because it meant that power companies could install scrubbers and other
technologies to remove SO2 and reduce their cost. They could also
decide to purchase low sulfur coal, but the options were open to them
as to how they would do it. The flexibility is great for the
producers, but the regulatory costs are much greater, as it comes down
to verifying every plant. Considering the scale of any level of
carbon regulation, the preference for the lowest regulation cost is
more important than in other cases.
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Last updated: 2/2/2006
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