Mikes paper
Topic: Carbon (Emission) Taxes versus Tradeable Permits (Caps and trade)
Question 2
Discuss the merits and demerits of each of these policies
Carbon Taxes
Merits
Encourages alternatives. A higher price of carbon emissions will encourages firms and consumers to develop more efficient engines or alternatives to consuming carbon emissions. For example, with carbon taxes, it will be more efficient to develop hydrogen engines or solar power.
It might encourage more people to cycle or walk to work. This would have health benefits such as lower risk of heart attack.
This could make it more feasible to generate electricity from green sources (e.g. solar power). If we develop more green sources it will also make us less reliant on oil.
It will help make the transition to a post oil economy easier.
2. Raises Revenue. The revenue raised from carbon tax could be used to subsidize alternatives such as green electricity or the revenue raised could be used to repair the damage caused by environmental pollution.
3. Leads to a socially efficient outcome. It makes people pay the social cost and overcomes the excess consumption.
Demerits
Production may shift to countries with no or lower carbon taxes. (so called ‘pollution havens’)
The cost of administrating the tax may be quite expensive reducing its efficiency.
Difficult to know the level of external cost and how much the tax should be.
Possibility of tax evasion. Higher taxes may encourage firms to hide carbon emissions.
If demand is price inelastic, the tax may have to be very high to reduce demand significantly. In the short term, firms may not feel they have many alternatives. Though other time, demand will become more elastic as more alternatives are generated.
Consumers dislike new taxes and often don’t believe that they will be ‘revenue neutral’. This is not an economic argument, but it is a political reality and explains why it is often difficult to implement.
A global carbon tax may curtail
Question 2
Discuss the merits and demerits of each of these policies
Carbon Taxes
Merits
Encourages alternatives. A higher price of carbon emissions will encourages firms and consumers to develop more efficient engines or alternatives to consuming carbon emissions. For example, with carbon taxes, it will be more efficient to develop hydrogen engines or solar power.
It might encourage more people to cycle or walk to work. This would have health benefits such as lower risk of heart attack.
This could make it more feasible to generate electricity from green sources (e.g. solar power). If we develop more green sources it will also make us less reliant on oil.
It will help make the transition to a post oil economy easier.
2. Raises Revenue. The revenue raised from carbon tax could be used to subsidize alternatives such as green electricity or the revenue raised could be used to repair the damage caused by environmental pollution.
3. Leads to a socially efficient outcome. It makes people pay the social cost and overcomes the excess consumption.
Demerits
Production may shift to countries with no or lower carbon taxes. (so called ‘pollution havens’)
The cost of administrating the tax may be quite expensive reducing its efficiency.
Difficult to know the level of external cost and how much the tax should be.
Possibility of tax evasion. Higher taxes may encourage firms to hide carbon emissions.
If demand is price inelastic, the tax may have to be very high to reduce demand significantly. In the short term, firms may not feel they have many alternatives. Though other time, demand will become more elastic as more alternatives are generated.
Consumers dislike new taxes and often don’t believe that they will be ‘revenue neutral’. This is not an economic argument, but it is a political reality and explains why it is often difficult to implement.
A global carbon tax may curtail
Cited: Carbon tax or cap-and-trade?. (n.d.). David Suzuki Foundation. Retrieved November 29, 2013, from http://www.davidsuzuki.org/issues/climate-change/science/climate-solutions/carbon-tax-or-cap-and-trade/bsite