Many arguments consider the best way to reduce greenhouse gas or carbon dioxide emissions and to limit the effects of global warming. Some promote a cap-and-trade system, in which limits are set for those that emit CO2. If they do better than their allocation, they can trade excess credits; if they do poorly, they must buy credits on the open market.
Variations of Cap and Trade have been adopted by Europe, much of the northeastern U.S., and California. China is also working on a Cap and Trade regulation.
But Cap and Trade has detractors, many of whom argue that a carbon tax would be more efficient and less prone to manipulation. The recent collapse of carbon prices in Europe’s carbon trading system, and declining faith in markets in general, has led to renewed calls for a Carbon Tax. Carbon Taxes have been adopted in Australia and parts of Canada.
Economists say a Carbon Tax is more efficient at stimulating investments to reduce CO2emissions, and the revenues could help plug the budget deficit.
Both Cap and Trade and Carbon Tax systems will be more effective with more efficient energy markets. If home sellers or landlords had to provide energy usage information, buyers and renters would gravitate towards more efficient homes.
Most people don’t even know if they use more or less electricity than their neighbors. A firm called OPower compiles these data for utility bills. This has proven effective in reducing energy usage and increasing customer satisfaction with their utilities.
Better energy markets can reduce carbon emissions even without a carbon tax or a cap and trade system. Think of what they could do together.
—-This segment was contributed by Tom Konrad Ph.D. CFA. Tom also writes about green investing for Forbes.
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Photo, taken on November 22, 2008, courtesy of dmytrok via Flickr.
Earth Wise is a production of WAMC Northeast Public Radio. Support for Earth Wise comes from the Cary Institute of Ecosystem Studies in Millbrook, NY.