A Fair Solution: Pricing Pollution
Integrating Carbon Pricing into Society
Pricing carbon pollution is one solution to lowering the emissions created from fossil fuel use and encouraging investment in clean energy options. A carbon pricing program brings responsibility to polluters by putting a price tag on greenhouse gas emissions. And, honestly, it makes a lot of sense. Carbon pollution is the biggest contributor to climate change and it’s time there is more incentive to reduce it.
How does carbon pricing work?
Carbon pricing accounts for the external costs of greenhouse gas emissions; that is, the costs that the public has to pay for, which may include healthcare costs, damage to crops and ecosystems, and loss in property value from extreme weather events. Instead of having governments dictate who needs to reduce their pollution and how, a carbon price allows for the polluter to decide whether they should lower their emissions or pay to pollute.
There are two types of carbon pricing programs:
Emissions Trading System (ETS):
This program, also known as a cap-and-trade system, caps the total level of greenhouse gas emissions allowed, lowering the cap over time. This system requires emitters to hold a permit for each ton of carbon dioxide they emit. The level of the cap determines how many permits are available. Industries with low emissions are able to sell their excess permits to the larger emitters. This creates a supply and demand for emission allowances, thus establishing a market price for greenhouse gas emissions.
In this scenario, it is the cap that determines the level of emissions.
A carbon tax sets a price on carbon directly by establishing a tax rate on emissions. This allows people to emit as much or as little as they would like, but if they do, they have to pay the tax. The tax revenue then goes to the government and can be used to lower other taxes or as compensation to those who experience adverse effects.
In this scenario, it is the price that determines the level of emissions.
Are there any pollution pricing programs in place now?
Nearly 40 nations have implemented or are in the process of implementing a carbon pricing initiative, including China, Australia, Brazil and Canada. The European Union has established a ETS system as the foundation of their climate change efforts for all 28 EU countries, as well as for Iceland, Liechtenstein and Norway. Many states in the United States have also established their own carbon pricing policies.
Putting a price on carbon emissions will only help to re-adjust the market to reflect the true cost of utilizing carbon intensive products and services. Right now, government subsidies for the fossil fuel industry keep the market price artificially low. It’s time for us to take more accountability for carbon pollution by shifting the responsibility and cost to the polluters.