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CARBON PRICING -
     TAXES OR CAP & TRADE 

 


There are several paths governments can take to price carbon, all leading to the same result. They begin to capture what are known as the external costs of carbon emissions and tie them to their sources through a price on carbon. A price on carbon helps shift the burden for the damage back to those who are responsible for it, and who can reduce it. Instead of dictating who should reduce emissions where and how, a carbon price gives an economic signal and polluters decide for themselves whether to discontinue their polluting activity, reduce emissions, or continue polluting and pay for it. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. The carbon price also stimulates clean technology and market innovation, fuelling new, low-carbon drivers of economic growth. There are two main types of carbon pricing: emissions trading systems (ETS - or more commonly "cap and trade") and carbon taxes. link

Latest news:

July 18 2017: California extends Cap-and-Trade to 2030. California's cap-and-trade program, the only one of its kind in the country and the second largest in the world, is the centerpiece of the state's efforts to reduce carbon emissions. It was established by a 2006 law and launched in January 2013 to run through 2020, and a new vote extended the program through 2030, though some environmental groups are against the legislation. link

June 23 2017: China is pushing ahead with an ambitious plan to build the world’s largest market for carbon emissions permits. link

June 12 2017: $40 carbon price needed say experts. 42 countries either have a price on carbon or plan to implement one soon, but economists say  most aren't high enough to keep global warming under 2 degrees. The new report says CO2 emissions will need to be priced at $40 to $80 per ton by 2020 to be high enough to change behaviors and shift investments away from high-emissions fossil fuels and toward cleaner energy. That rises to $50 to $100 per ton by 2030. Even then, the report says, governments may need to pair a carbon price with other policies, such as efficiency standards, to lower emissions fast enough to keep global temperature rise well below 2 degrees Celsius, the goal of the Paris climate agreement.  link

          ______________________________________________________

          Below:

  • Overview of carbon taxing
  • Overview of carbon cap and trade
  • Effectiveness by countries

State and trends of carbon pricing - World Bank Review - October 2016  -  pdf

Overview of carbon taxing

Carbon tax is a form of pollution tax. It levies a fee on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. The government sets a price per ton on carbon, then translates it into a tax on electricity, natural gas or oil. Because the tax makes using dirty fuels more­ expensive, it encourages utilities, businesses and individuals to reduce consumption and increase energy efficiency. Carbon tax also makes alternative energy more cost-competitive with cheaper, polluting fuels like coal, natural gas and oil. link   

April 2017: Right now 19 countries, including Finland, Japan and Mexico, impose levies with prices ranging from less than $1 to $131 a metric ton of CO2 emitted. Australia had a carbon tax but changed its mind in 2014. link

How would a carbon tax be implemented

Overview of carbon cap and trade

(April 2017) Cap and trade tries to efficiently limit emissions by putting market forces to work. The government starts by setting an overall cap on emissions, either for the overall economy or specific industries. It then gives or sells emission allowances to polluting businesses that represent the annual carbon limits they’re allowed to emit into the atmosphere. If companies take measures to be greener or more efficient, they can profit by selling extra credits left over. Companies that exceed pollution limits can buy additional allowances. About 41 nations around the world use these methods, including the European Union, China’s Shenzhen province, Canada’s Ontario and California in the U.S. The EU program is the biggest by traded volume. Some countries, including the U.K., use both cap and trade markets and taxes or price floors.
The cap-and-trade programs haven’t had a big impact on corporate behavior, but have encouraged some switching by utilities to cleaner natural gas from coal. That’s because the cost of pollution credits has been lower than expected - in the EU, the price has fallen more than 80% in the past decade to about 5 euros a metric ton. That’s about half the level needed to start biting in Germany.   link

Effectiveness by countries

China

March 2017: China is moving closer to a carbon tax for cutting emissions and away from the EU’s emissions trading model, For two years now, China has been piloting a carbon market modelled on the EU’s emissions trading system (ETS), which tries to bridge free market economics with climate action. But the project is behind schedule and speaking in Brussels, Yi Wang, a member of China’s national people’s congress and vice-president of the Chinese Academy of Sciences said Beijing would not “take the lead” in linking the two carbon markets. link


European Union
 

Since 2009, Europe has cleaved to its ETS which sets a cap on emissions and then allocates or sells polluting allowances to around 10,000 companies, which can sell, bank, trade or offset their unused credits. However, carbon prices have struggled to rise above 5 euros a tone due to waves of free allocations to heavy industry, intended to forestall their relocation abroad. The result has been a carbon price too low to trigger meaningful change. link

Canada

October 2016: Prime Minister Justin Trudeau announced a national “floor price” on carbon that would require all provinces and territories to have some form of carbon pricing by 2018. British Columbia introduced a carbon tax in 2008 and it now stands at $30 a tonne, adding an extra 6.67 cents to each litre of gasoline. In August, the province said it would stick to that price until other jurisdictions catch up. Alberta announced last November it will have a $20-per-tonne carbon levy in place next year, rising to $30 a tonne in 2018.  link

June 2017: Exxon, BP and Shell back carbon tax proposal to curb emissions. The companies have revealed their support for the Climate Leadership Council, a group of senior Republican figures that propose a $40 fee on each ton of CO2 emitted as part of a “free-market, limited government” response to climate change. The fossil fuel companies announced their backing for the plan alongside other major firms including Unilever, PepsiCo, General Motors and Johnson & Johnson. link

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