The Debate about Carbon taxing vs. Cap and Trade
I.
Cap and Trade: What is it and how does it work?
II. Carbon tax: How does this work and what is the
intended incentive to businesses that emit too
much CO2?
Carbon Pricing 101
Putting the Market to Work
PriceonCarbon.org
Costs of fossil fuel use are not included in the current price
of using them. What are some of these costs?
•
•
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Hurricanes/severe weather (Sandy $65b), drought, health
costs, sea level rise
Cost of Carbon estimates from $37 to >$400/ton CO2e
Fossil fuels are artificially inexpensive
Put a price on carbon emissions so users pay the fair price
•
•
•
Fossil fuel use will decrease; CO2 emissions will decrease
Alternatives become more affordable and grow
The economy can also grow
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1. Tradable emissions permits (cap and trade) policy:
• Tradable emissions permits are licenses to emit limited
amounts of pollutants; these permits can be bought and sold
by polluters.
• Permits are issued to polluting firms by regulators based
upon a formula that reflects each firm’s polluting history.
• Firms facing different costs of reducing pollution can
engage in a mutually beneficial transaction: those that find it
easier to reduce pollution can sell some of their permits to
firms that find it more difficult.
• The ideal end result is that the producers with the lowest
cost will reduce their pollution the most, while those with
higher costs will reduce their pollution the least.
• Where is this policy practiced? And, does it really reduce
carbon emissions?
Pricing Carbon is not a new idea
Figure from World Bank report, 2014
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How Do You Price Carbon?
Carbon Pricing Elements
Pricing
Mechanism
Emissions
Included
Revenue Use
1. Carbon Tax or Fee
2. Cap and Trade
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Pricing Mechanism
Cap and Trade
Carbon Tax
Emissions
Declining emissions cap
set by government
Price
Price based on market
Emissions volume
based on market
Rising price set by
government
Both mechanisms have been tried;
both can be effective.
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Cap and Trade
Declining Cap Set by Government
Company A
Maximum
Emissions
Allowed
Year 1
Linda Swift © 2015
Year 2
Year 3
Year 4
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Cap and Trade
Permits Auctioned by Government
Cap = 100
units
Company A
Emissions
Company A emits above
cap, needs more permits
Permits
Cap
Company B
Emissions
Linda Swift © 2015
Permits
Company B buys more
permits than needed
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Cap and Trade
Company A
Emissions
Permits
Company B sells
permits to Company A
Company B
Emissions
Permits
© http://PriceonCarbon.org
Cap and Trade
Company A
Emissions
Permits
Company B sells
permits to Company A
Company B
Emissions
Linda Swift © 2015
Permits
© http://PriceonCarbon.org
Emissions Included: which industries?
EIA
© http://PriceonCarbon.org
• The EU Emissions Trading System and data on
reducing emissions since implemented.
• The European Union Emissions Trading System (EU
ETS) can serve as a model on which to evaluate
effectiveness of this policy.
• https://www.youtube.com/watch?v=fJrFSLfaeeE
• https://www.youtube.com/watch?v=5YCftIlYLyw
II. The Carbon Tax:
An Illustration of its practice in Boulder Colorado
BOULDER’S CLIMATE ACTION PLAN:
HOW WE GOT HERE
2006:
 Climate Action Plan Committee
shepherds CAP toward
completion; adopted by city
council in June
 Council determines carbon tax
is best revenue source for
implementation, places tax on
November ballot
 Measure passes, 60.5% in
favor, 39.5% opposed
BOULDER’S CARBON TAX:
SPECIFICS
 Tax on electricity consumption
15%
2005 EMISSIONS BY SECTOR
GHG Inventory Breakdown by Sector
Solid Waste
4%
Residential
17%
Transportation
27%
University of Colorado
5%
Commercial
38%
Industrial
9%
BOULDER’S CARBON TAX:
SPECIFICS
Maximize voluntary emissions reductions
through:
 Education, outreach and marketing
 Reducing barriers to energy efficiency and
renewable energy
 Connecting residents a nd businesses with available
rebates and tax credits
CLIMATE ACTION PLAN
STRATEGIES
1. Increase energy efficiency
2. Switch to renewable energy and vehicle fuels
3. Reduce vehicle miles traveled
Maximize voluntary emissions reductions through:



Education, outreach and marketing
Connecting residents and businesses with available
rebates and tax credits
Providing services not offered in the Boulder market
BOULDER’S CARBON TAX:
SPECIFICS
 Applies to all electricity customers in the city
 No tax charged for green power customers
 Rates set in direct proportion to expected
program sector expenditures
 Rates can be re-set depending on program
needs
 Rates can be increased by 20%
 Sunsets in 2012
 Will raise approximately $1 million per year
GHG EMISSIONS REDUCTIONS
PER SECTOR BY 2012 (MTCO 2 E)
Sector
Energy
Efficiency
Renewable
Energy
Total
Residential
30,228
16,914
47,142
Commercial
30,852
32,088
62,940
Industrial
10,896
21,000
31,896
City Operations
4,248
4,002
8,250