NORTH PRAIRIE, Wisconsin — If only there were something that would limit pollution, encourage businesses to reduce their carbon footprint and slow global climate change. Depending on who you ask, that something exists, and it’s called carbon
Carbon pricing is exactly as it sounds like; companies whose operations cause carbon pollution are charged for it. The effects are twofold. For one, reducing carbon emissions isn’t a simple, moral obligation. It becomes economically sensible. Less emissions means less money spent on paying for them. Second, the money paid for the pollution can be used to clean it up. It can be invested in green energy and development projects.
But how does one go about charging for pollution? Generally, it’s through carbon taxing or ETS.
‘Carbon taxing’ is a tax on the distribution, sale and/or consumption of carbon-based fuels. To keep consumer prices low, companies need to limit their usage of carbon fuels and their emission of carbon pollution. In the meantime, of course, the cost of living may increase.
The second method, called Emissions Trading Systems, or cap-and-trade, is a little more complicated. As with a budget, a government decides on an allowable amount of pollution (like money) over a period of time. Businesses are allotted a certain part of that total. Smaller businesses with less pollution can then trade and sell the pollution allowance they won’t need to larger companies. This creates a market for carbon pollution; incentivizing businesses to keep emissions low.
Currently 39 countries and 23-sub countries have enacted or scheduled some form of carbon pricing. Few decisions have been made on international and national levels: We shouldn’t expect to see a standardized pricing or pricing method for quite some time. But regionally, carbon pricing has taken off.
California’s cap-and-trade program, which began in 2013, is expected to cover 85 percent of emissions by 2015. China has six pilot programs already running in major cities, including Beijing. The fact that programs are being implemented in the U.S. and China, two pollution giants, gives reason to hope for climate change progress.
As most systems are in their infancy, it is impossible to gauge the effects carbon pricing will have on global poverty. There are three main points that have been raised thus far.
If carbon pricing is successful in reducing emissions, it may slow climate change. That will indirectly affect millions of livelihoods, especially in the developing world, where people are especially prone to natural disasters. An increasing number are being forced from their homes as ‘climate change refugee.’
Carbon-intensive commercial goods tend to be less expensive than their sustainable counterparts. Carbon pricing, therefore, is likely to disproportionately affect low-income families. Some groups recommend carbon revenues be used to subsidized greener alternatives, to relieve the financial strain. Others are against the implementation of carbon pricing altogether. It was this line of logic that led the Australian Parliament to repeal its own carbon tax this summer.
On a more optimistic, global scale: Analysts at the National Bureau of Economic Research predict that revenues will eventually be large enough to redistribute into poorer communities. Revenues could account for up to seven percent of the global national product. It’s a lot of money that could be put to very good use.
– Olivia Kostreva
Sources: The Guardian, World Bank, CER, OECD, NBER