This document compares and contrasts carbon taxes and cap-and-trade policies for reducing greenhouse gas emissions. A carbon tax sets a fee per ton of carbon emissions to make polluting more expensive and encourage energy efficiency and cleaner energy. Cap-and-trade sets a limit on total emissions and allows companies to trade permits to emit. It provides an economic incentive to reduce emissions. Both approaches aim to lower emissions over time, but a carbon tax provides more predictability while cap-and-trade may face fewer political obstacles. An ideal solution would involve international cooperation on carbon pricing and flexible allowance prices with a focus on developing alternative energy sources.

1. Carbon tax vs. Cap-
and-Trade: which is
better?
A presentation by Angel-Avocado
and Nami-Nutella

2. Carbon Tax
• Carbon tax is a form of pollution tax. A fee for
greenhouse gas pollution.
• The government sets a price per ton on
carbon, then translates it into a tax.
• Tax makes using dirty fuels more- expensive.
• Encourages businesses and individuals to
reduce consumption and increase energy
efficiency.
• Adopting to greener practices.

3. Cap and Trade
• Sets a cap, and distributes emissions permits
among firms that produce emissions.
• The emission cap ensures that total pollution
goes down
• Companies are given an economic incentive to
find better ways to reduce greenhouse gas
and support clean energy.
• more complex

4. Cap and Trade

5. Advantages
Carbon Tax:
• encourages alternative energy.
• more predictable and stable.
• incentive to use/develop more environmentally
friendly production processes.
• Quick to implement
Cap and Trade:
• More effective/complex approach.
• Fewer political obstacles than tax

6. Disadvantages
Carbon Tax:
• Production shift to countries with no or lower carbon
taxes (China)
• Firms may hide the real carbon emissions so they can
pay less.
• Difficult to measure how much carbon is produced.
Cap and Trade:
• Emissions are capped, but the dollar price is unknown
and dependent on many market variables.
• Everybody has to be involved otherwise some
businesses may loose their competitive advantage!

7. Global Warming
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1860 1880 1900 1920 1940 1960 1980 2000
GISS
Hadley
Global Mean Temperature Anomaly
(Relative to 1900)
DegreesC

8. Solution
How can we reduce pollution and other
externalities that are caused through market
mechanisms?
• Harmonized international carbon price. (Fair)
• Allowance prices automatically adjust to
economic conditions.
• Use alternative Energy.
• Think outside the box!