This House believes that a cap-and-trade system is preferable to a carbon tax in reducing carbon emissions.

It is generally agreed among most academics, and is generally assumed during BP and Worlds format debates, that global warming exists as a phenomenon.  Further, it is generally agreed that carbon emissions have something to do with global warming.

Corporations and businesses tend to be the largest individual producers of carbon emissions. Although households may use more collectively, the processes of manufacturing and power generation create vastly more loose carbon than the functions of a single home.

In the past few years many capitalist liberal democratic nations have been studying different methods of preventing corporations from emitting too much carbon. The first type is a normal tax. This method simply taxes corporations in proportion to the amount of carbon that they emit. The second is a more complicated system where a nation creates a carbon “cap” or a limit on the amount of carbon it is willing to allow firms to emit. The government then requires that firms hold permits, or “carbon credits” equivalent to their emissions. The number of credits given out by the government cannot exceed the cap. Firms that need to increase their emissions must thusly buy carbon credits from those firms that do not need as many permits. Thus a market is created for carbon credits, which allows the government to regulate the amount of carbon emitted by each firm at ideally, the lowest possible cost to society.

Whether a carbon credit system actually works to the extent that the theory above suggests, however, is something that is up for debate. Practically the debate can come down to a discussion of cap and trade only, however, it is likely the best option for opposition to use carbon taxes as a counterprop or a viable alternative.

Title 
Cap and Trade is Better at reducing carbon emissions than a carbon tax.
Point 

A cap-and-trade system provides companies with credits if they are able to reduce their emissions below an established level. They can then sell these credits for a profit. So, if a company takes action to reduce its carbon emissions below the designated level, than it can make a profit. This is a powerful market incentive that is more likely to cause companies to invest money in finding ways to reduce their carbon emissions. A carbon tax, conversely, only provides the incentive of cutting costs, and does not offer this important profit motive.

With cap-and-trade emissions are much more likely to be meaningfully reduced, specifically because the cap is static and as such nations can choose to raise and lower it as they wish. Within this mechanism, market prices would simply reflect the availability of credits. As such, nations can guarantee a reduction in carbon emissions just by reducing the number of credits in the market.

Finally, because cap and trade affects all companies and minimises cost to them, it provides all companies with an incentive to work toward green technology. Under the status quo, where subsidies and research grants are paid to businesses researching emissions reduction technology, the government has to decide which companies are “best” at solving the ecological damage that industry causes. Other companies feel they don’t have to contribute because they are simply being taxed instead. We do not know where the next development in green technology will come from. As such a smaller impetus for everyone is likely to be better than a large impetus for a small number of companies who might not, in any event, be able to develop workable solutions to emissions problems.[1]

 

[1] Mankiw, Gregory, “Carbon Tax Problem,” 11/04/07 http://gregmankiw.blogspot.com/2007/04/carbon-tax-problem.html

Counterpoint 

A tax on carbon by comparison to a cap and trade system provides a much more powerful message regarding the importance of carbon policy. Whilst a trade system seems to the general public and to an extent to firms, like simply another product to manage, a tax carries very strong connotations owing the severity of other taxes levied by governments. As such it provides a stronger incentive for firms to change their attitudes toward carbon.

Further, a cap and trade system is flawed because often polluters will pollute heavily before the system begins. As the only way to implement cap and trade is to do so based on past emissions (or risk being incredibly unfair), this means that many companies will emit as much as possible so that their baseline emissions will be set highly enough to give them a measure of leeway.

Further, a carbon tax system is much easier to change based on the effects of the policy on climate change in the future. Whereas a cap and trade system must deal with changes to the market of cap and trade itself as well, as changes to the overall market. A cap and trade system is more complicated than a centrally imposed tax. Therefore, it will be harder to predict and adjust the behaviour of the credit market in the future.

A carbon tax also allows for the redistribution of the taxed money into researching green causes. It leads to a better overall result because money can be focused on companies that have shown progress in this area and taken from those companies that have no intention of changing the field.[1]

 

[1] Shapiro, Robert. “Vs. Cap-Trade.” Carbon Tax Centre. 04/2009 http://www.carbontax.org/issues/carbon-taxes-vs-cap-and-trade/

Title 
Cap and Trade is More Economical Than a Carbon Tax
Point 

"The efficiency [of a cap-and-trade system] comes with the "trade" part. Let's say you have two power plants, each emitting 100 tons of carbon per hour. The first can reduce its emissions by 20 tons at a cost of $5 per ton, and the second can reduce its emissions by only 10 tons, at a cost of $30 per ton. Clearly the efficient thing to do is to make the former reduction rather than the latter, with the owner of the second plant paying the owner of the first plant to offset the first owner's extra costs [by buying carbon credits and the "right" to pollute from the first plant]."[1]

This technique allows effective emissions reductions to occur at the lowest cost. Hence as this is less disruptive to business they are more likely to be on board and not try to get around a cap and trade system using accounting methods in the same way that they might with a tax.

A cap-and-trade system is more flexible in the global economy. Nations that adopt a cap-and-trade system can later link that system into other cap-and-trade systems around the world. It would not be as easy for a carbon tax to achieve this. This is important in today's global economy, where multinational companies exist across borders.

As such cap-and-trade is the most viable solution that if implemented could lead to a long term solution and agreement between countries regarding reductions in emissions.[2]

 

[1] Nast Conde, “Why a Cap-And Trade System Beats a Carbon Tax.” Portfolio.com 19/04/2007 http://www.portfolio.com/views/blogs/market-movers/2007/04/19/why-a-cap-and-trade-system-beats-a-carbon-tax

[2] Nast Conde, “Why a Cap-And Trade System Beats a Carbon Tax.” Portfolio.com 19/04/2007 http://www.portfolio.com/views/blogs/market-movers/2007/04/19/why-a-cap-and-trade-system-beats-a-carbon-tax

Counterpoint 

The costs of establishing and administering a cap-and-trade system could be substantial. It demands that a cap be set, monitored, and enforced. This is a highly complicated process, given the size of the energy market, and would demand substantial administrative oversight. Further, should the monitoring not be perfect, given the size and power of the firms involved, it is likely that they will be able to find loopholes in order to deal with the problem.

A carbon tax is predictable, as are most simple tax systems. A cap-and-trade system, on the other hand, is subject to market fluctuations, speculation, and volatility. This could have a bad effect on energy prices. Specifically, if the market becomes subject to speculative attack, it would be likely that energy companies would have to offset the risks in the market by raising energy prices. Further, such market volatility could lead to certain energy companies being unduly punished for changes in the market that they simply could not have predicted.[1]

 

[1] “Carbon Markets Create a Muddle.” Financial Times. 26/04/2007 http://www.ft.com/cms/s/4b80ee18-f393-11db-9845-000b5df10621.html

Title 
A Cap and Trade system is fairer to producers
Point 

Carbon emitting energy industries emerged long ago, before anyone thought about the environmental impact of this industry. It is wrong to suddenly consider all energy production that involves carbon emissions a social "harm", after decades of thinking to the contrary. Modern energy producers should not be punished for their participation in an industry whose emergence pre-dates concerns of global warming.

Further, A cap-and-trade system is "fair" because it rewards "efficient"-polluters while punishing "non-efficient" polluters: Given the above argument, this is a more reasonable approach to rewarding and punishing an industry whose emergence pre-dates the environmental concerns surrounding carbon emissions.

Counterpoint 

A carbon tax essentially considers all carbon emissions harmful to the environment, and warranting of equal punishment so is therefore fairer. A cap-and-trade system only punishes carbon emissions above a certain level, treating only certain kinds of emissions as "bad". A carbon tax, therefore, sends a strong message to polluters that all their emissions are harmful, that they should be phased out, and that they should invest in environmentally-friendly sources of energy. This dramatic message may be particularly important if we view global warming to be a serious crisis.

Companies are even willing to pay a premium for the stability provided by this system[I1] ; the premium being the tax itself, and the lack of the potential for profit through the trading of carbon credits. Further as a system that is easy to understand it is easier for directors to allow their firms to ease in to the system.[1]

 

[1] Ugur Akinci, “Carbon Tax Versus Cap And Trade Approaches to Global Warming – Part 1.” Doubletaxes.com 2007 http://doubletaxes.com/category/free-tax-forms/carbon-tax-rebate-forms-through-small-business-ministry.html

 [I1]Examples and case studies required.

Title 
Cap and Trade is Less Feasible Than a Carbon Tax
Point 

Carbon taxes are useful owing to the transparency behind them. It helps companies working for green causes gain a strong reputation and support among the public because they are seen to be paying for their pollution. A cap and trade system is significantly more difficult to understand and as such this means that there will likely be less public will behind the system and thus a lesser incentive for transparency.

A cap-and-trade system demands that the government determine the emissions baselines for companies, the allocation of carbon credits, and the monitoring and enforcement of all of the above. This is a major administrative burden. A carbon tax would be simpler and require less oversight, and would cost domestic tax payers less.

The complexity of a cap-and-trade system would make it easier for companies to cheat. This is largely because the enforcement of this system would be difficult and open to manipulation by skilled lawyers, accountants and consultancy firms.

Further, Governments have the incentive to establish conditions favourable to the performance of their own national companies. They can do so by, for example, offering more carbon credits than they should to the companies of their country. The EU's emissions trading system is the primary example of this occurring.[1]

 

[1] Shapiro, Robert. “Vs. Cap-Trade.” Carbon Tax Centre. 04/2009 http://www.carbontax.org/issues/carbon-taxes-vs-cap-and-trade/

Counterpoint 

The basic problem is that a carbon tax would be seen as a new tax. New taxes are typically unpopular. This makes it hard for politicians to support a carbon tax, as they are beholden to their constituents, and their likely desires to avoid such a tax. This in itself makes it unlikely a Carbon Tax would ever be implemented.

Further, a carbon tax would require complicated enforcement mechanisms. These mechanisms would impose an administrative burden on the state more severe than that created by a cap-and-trade system. In a carbon tax, emitters would pay a tax for every tonne of carbon emitted. This requires that the government know precisely how much carbon is being emitted by energy producers. This is not easy to determine, and requires that a government put in place monitoring mechanisms. Deploying these mechanisms universally would be very complicated, expensive, and require much administration. Then, ensuring that all these monitoring devices operate properly and that all energy producers comply with the tax would also involve a substantial administrative overhead.

This would be equally as complicated as a cap-and-trade system, which requires much the same administration, but also encourages other companies to keep tabs on their competitors and their emissions. Credit trading spreads the administrative costs of carbon taxation over a number of companies, all of whom will be acting to protect their carbon credit investments and the stability of the market they are traded on.

Title 
Carbon Taxes Are More Progressive both Politically and Economically than Cap and Trade
Point 

Carbon taxes are progressive and help economically marginalised communities to a much greater extent than cap and trade. Currently, affluent businesses, individuals and legal persons usually emit a much larger amount of carbon than poor people. A flat tax on emissions causes a significant amount of money to be redistributed from the rich to the poor. Moreover, the poorest in society are often the first and worst affected by environmental damage. They lack the capital necessary to move out of areas affected by problems such as smog and water pollution.

A carbon tax is a particularly useful system of redistributive justice, because money made from taxing firms can then be reinvested into finding greener energy solutions. Specifically this money can be invested in green energy companies that have already shown progress in producing goods that reduce carbon consumption. As such, a carbon tax not only reduces carbon consumption directly, but can also do so indirectly by investing in technology to prevent carbon consumption in the future.[1]

 

[1] Shapiro, Robert. “Vs. Cap-Trade.” Carbon Tax Centre. 04/2009 http://www.carbontax.org/issues/carbon-taxes-vs-cap-and-trade/

Counterpoint 

A "regressive" tax is one that disproportionately burdens poorer groups. The amount of money payable under a regressive tax gets lower as payment taxed increases, or the activity taxed becomes more productive.

Energy consumption generally makes up a larger portion of the personal budgets of poorer groups. This is because their budgets are significantly smaller and they tend to purchase a greater deal of perishable goods. Specifically, durable goods such as new sets of cutlery etc. tend not to increase the level of carbon consumption in a household. However, perishable goods such as food often need to be cooked.

Companies that are subjected to a flat carbon tax that cannot be offset by carbon credit training are likely to pass on some of their tax liability to consumers in the form of increased prices. As has already been established, the cost of consumables and energy purchases constitute a greater proportion of the income of poorer households. A flat carbon tax, even if levied against businesses and industrial polluters would, inevitably, be paid in part by the poor.

Tradable carbon credits, on the other hand, could conceivably result in a net transfer of wealth to the poor. Although the poor spend a bigger proportion of their income on energy, the wealthy consume a far greater amount of carbon in absolute terms. So under a cap-and-trade regime, we would expect the poor (and the energy thrifty) to have excess credits to sell to their more profligate neighbours.[1]

 

[1] Stein, Adam. “Carbon tax vs. carbon market: who would win in a fight?” Terrapass.com 15/08/2006 http://www.terrapass.com/blog/posts/carbon-tax-vs-t

Title 
Cap and Trade will Harm Energy Consumers
Point 

Carbon trading would harm smaller and start-up business to a significant extent. It is easier for wealthy companies to reduce their carbon consumption as they have a greater level of wealth and thus a greater ability to do so.  As such under a market mechanism they would have more credits. Poorer businesses would have to buy carbon credits from the richer ones, compromising competitiveness; in addition, small business parks and areas attractive to start-ups would potentially become sinkholes for pollution under the proposition. The resolution could undermine the efficiency and profitability of small but agile engineering and manufacturing firms, such as the mittelstand businesses that have recently flourished in Germany.

The volatility of cap and trade markets means that firms would have to insure against the markets turning against them. In practical terms, this means that following the implementation of a cap and trade scheme firms would have to significantly increase fuel prices in order to hedge against the possibility of the market turning against them and harming their company. As such even if cap and trade is a more “efficient” system it still harms consumers significantly.

Counterpoint 

A carbon tax would be more likely to pass on problems to consumers. With the tax being as clear as it is, firms could quite easily appeal to the public and claim that it is the government that is causing them to change prices. Given the inelastic nature of the markets for energy and food, if a number of core companies were to take this action at the same time, then it could simply lead to the government taxing people more for the mistakes and harm that firms cause.

Whilst the public bear some measure of responsibility by consuming the firms’ products, the majority of the cost should be borne by the firm. This is especially true in energy markets where it is impossible for consumers to simply avoid using energy altogether. Moreover, businesses are in a better position to control and improve the efficiency of their operations than their customers are.

 Given that a cap and trade system results in a lower loss for firms it is less likely to be passed on to the people instead. 

Bibliography 

“Carbon Markets Create a Muddle.” Financial Times. 26/04/2007 http://www.ft.com/cms/s/4b80ee18-f393-11db-9845-000b5df10621.html

Mankiw, Gregory, “Carbon Tax Problem,” 11/04/07 http://gregmankiw.blogspot.com/2007/04/carbon-tax-problem.html

Nast Conde, “Why a Cap-And Trade System Beats a Carbon Tax.” Portfolio.com 19/04/2007 http://www.portfolio.com/views/blogs/market-movers/2007/04/19/why-a-cap-and-trade-system-beats-a-carbon-tax

Shapiro, Robert. “Vs. Cap-Trade.” Carbon Tax Centre. 04/2009 http://www.carbontax.org/issues/carbon-taxes-vs-cap-and-trade/

Stein, Adam. “Carbon tax vs. carbon market: who would win in a fight?” Terrapass.com 15/08/2006 http://www.terrapass.com/blog/posts/carbon-tax-vs-t

Ugur Akinci, “Carbon Tax Versus Cap And Trade Approaches to Global Warming – Part 1.” Doubletaxes.com 2007 http://doubletaxes.com/category/free-tax-forms/carbon-tax-rebate-forms-through-small-business-ministry.html

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