Paul J. Lee, Ph.D, CPA
The Necessity for Action
 Unnatural ecological changes due to global warming,
which is caused by the increase of carbon dioxide
emissions.
 The greatest rise of carbon dioxide emissions was
within the past 30 years.
Alternative energy sources
 Many attempts to substitute and replace nonrenewable
energy with alternative fuel sources such as ethanol,
corn, hydrogen power and solar power has not
succeeded the over-consumption of fossil fuels.
The Kyoto Protocol
 Established in 1997
 Adopted by 37 countries
 Mandatory reduction of greenhouse emissions
 The U.S. did not participate, being the primary
contributor of greenhouse pollution.
Cap and Trade System
 A market-based approach used to control pollution by
providing economic incentives.
 Cap: Government allotted amount of emissions each
company will be allowed to produce.
 Trade: Industries will be able to “trade” left over credits
to other companies for profit.
Purpose of the Cap and Trade
System
 To minimize the overall carbon emissions to a safer
level than are currently permitted.
 The cap serves as an accountability system amongst
companies
 Trade allows for independence and flexibility
Criticism of Cap and Trade
 The European Emissions Trading Scheme has
undergone the cap and trade method for 2 years, but has
fallen short of expected results.
 When the cap is set too high: carbon emissions will not
be reduced enough to decrease greenhouse pollution
and change the behaviors of the companies.
 When the cap is set too stringently: companies will
struggle to realistically reduce carbon emissions, while
also having to increase the cost for consumers to afford
the trade for more credits.
Potential of the Cap and Trade
System
 Can reduce carbon emissions greatly in the long run,
although results may seem insignificant in the short
run.
 Success depends on how earnestly the nation is
committed, and how flexible they are.
Carbon Tax
 The amount taxed to producers of carbon emissions
based on the measurement per company/individual,
by area.
Benefits of Carbon Taxation
 Simple
 Quicker to implement
 Encourages the reduction of carbon emissions
 Enforceable on a smaller scale
 Can be adopted in a relatively short time span
 Initiative for companies who over-produce carbon
emissions to either improve their habits or pay for
their damages.
 Can provide tax incentives
Impact of Consumer Behavior
 Carbon taxation can make individuals and companies
more aware of the detriment of greenhouse pollution.
 Individuals can make a significant impact on
decreasing carbon emissions (ex: purchasing hybrid
cars)
Tax Incentives for America
 Fuel-inefficient cars would be more heavily taxed than
fuel-efficient cars.
 The tax money would be spread to those who more
mindful of conserving fossil fuels.
 Subsidize the costs of more fuel-efficient cars and
hybrids for other ecologically-minded consumers.
 Tax incentives and rebates when purchasing a hybrid car
has a strong influence on the public.
 Would motivate consumers to buy eco-friendly cars.
Considering Factors between Cap
and Trade & Carbon Taxation
 Both are market-based policies
 Important factors:
 How efficiently the policy can be implemented
 How well the policy can be managed
 How the policy influences both the environment and
the economy in the future
Strengths & Weaknesses of the Cap
and Trade System
 Strengths: Decrease the cost of emissions in
comparison to normal regulatory methods.
 Balance and encourage flexibility.
 Weaknesses: Easy to manipulate and bargain for more
credits.
 Can be overbearing and oppressive to consumers.
 Does not have a mechanism to decrease the additional
burden of the high-energy prices on the population
Strengths & Weaknesses of Carbon
Taxation
 Strengths: More manageable than a cap and trade
system.
 More straightforward to tax and obtain the taxes.
 More efficient and takes less time to initiate.
 Direct and comprehensive target and achieve both
short-term and long-term goals in carbon emission
reduction.
 Weaknesses: People conceptually assume that being
taxed is negative.
 Will not fix the damage already done.
Conclusion
The cap and trade system would help to limit the usage
of carbon emitting fuels, it leaves room for error from the
start. However, carbon taxation would give companies
the realization of the detrimental impact of pollution to
the environment and encourage them to lessen their
carbon emission. Carbon taxation has potential to
benefit the U.S. economy, and if implemented with the
cap and trade system, they could create a more effective
and opportune solution.