French President Nicolas Sarkozy
The French version of the Supreme Court this week shot down a carbon tax proposal that the Nicolas Sarkozy administration hailed as a fundamental weapon against climate change. The court cited too many loopholes. Today, France’s economic minister is offering a new proposal he says will close many of those loopholes and says the new proposal is a necessary tool to fight CO2 emissions.
As a follow-up to our earlier post looking at the Carbon Offset, we wanted to take a summary look at two other CO2 mitigation plans. Unlike the Carbon Offset, which typically is an industry-driven solution, two others are the so-called “cap & trade” system and the straight carbon tax. Both require direct involvement from government.
Cap & Trade
What is the so-called “cap & trade” system? Long in place as a method for managing pollution in Europe, cap & trade is a two-part system where a government sets a cap on the volume of particular greenhouse gases (GHG) (carbon dioxide, mercury, nitrous oxide and sulfur) can be emitted. The government then sets up a system where companies can earn “credits” when they emit fewer emissions. Companies can sell these credits to other organizations unable to currently meet their caps. Proponents of cap & trade contend a government can reach their overall emissions caps at the lowest possible cost. Critics of cap & trade say the system is flawed, arguing it is cheaper for many companies to purchase the credits rather than invest in technology to reduce their emissions. Thus, they say, it does nothing to impact CO2 emissions in the long-term and merely serves as an arbitrary tax in the short-term.
Carbon Tax
The other CO2 mitigation proposal is the carbon tax. Relatively self-explanatory, the carbon tax is an excise tax on the carbon content of fossil fuels (oil, gas, coal). Those in favor of the carbon tax say it is the simplest and most efficient way of pricing emissions and will quickly spur investment in carbon reduction. Those against say it is a regressive tax that punishes those smaller companies unable to withstand the penalties and will hurt small business and put people out of work. Many economists and experts believe the carbon tax should be phased in over time so as to allow companies and organizations adapt.
At the end of the day there are arguments from every angle. In whatever way CO2 mitigation is achieved, we can rest assured it will take not only determined investment in technology, but also a sustained belief that it is our obligation as people to do what we can to save the environment, and ultimately, ourselves.
But there is obviously another force at work that will likely impact the world markets outside he supply question – Congress is considering legislation to mandate lower emissions from industry either through European “cap and trade” schemes or an outright tax. Exxon CEO Rex Tillerson said in a speech at an APEC summit in Singapore that he advocates for a carbon tax rather than carbon trading.
