Cap And Trade Vs Carbon Tax: A UK Essay On Saving The World From Global Warming.

Societies across the globe can get affected due to climatic change. People will face problem from economy to health and their daily lives will become challenging from, drinking water to sleeping. The ecological system may get disrupted due to climatic change. The loss will be permanent and it can be equated that per capita carbon emission of the world will get increased by 14% (Du et al. 2015). People living in the poor countries will be affected severely.

A change is required to save the global warming portfolios and a technology can drive that change. A transition from carbon emission energy system to bio energy system is a tough process. The process can get only viable if the government come up with proper policies beside technologies that can be the driver to achieve the goal of 2050. The report is all about saving the world from global warming in UK perspective.

In response to the increasing evidence that the activities of human are contributing to the worldwide climate change studies have argued that if the marketplace is left open to operate liberally greenhouse gas release will be extreme (Agee et al. 2014). The decision makers have devoted a considerable amount of time to the policies of public with the objective of reducing the greenhouse gas emission and preventing or reducing the change. Several industrialized countries have made the use of the carbon taxes with the objective of discouraging the use of fossil fuel emission and promoting clean energy. Under the cap and trade system, government implements restrictions of firm restriction or cap on the broad quantity of carbon pollution emitted from industry and cuts down the gap annually to reach at the target of pollution. In view of the fact that the fall in cap each year it cuts down the total amount of greenhouse gas emission to the boundary defined by the regulations.

To distinguish the notion cap and trade have unsurprising carbon emissions with fewer quantity of political obstruction than a duty. Under the cap and trade system, the income can be returned with the assistance of rebate that is used for public goods. With an increase in amount of income under cap and trade, the degree of emission falls down. On the other hand, in carbon tax most of the politicians hesitate in advocating for carbon tax (Goulder and Schein 2013). Under the carbon tax there is no form of restriction on the amount of capita that can are emitted. The value of money is recognized however, the amount of carbon that can be emitted might not reach the desired or may not scientifically achieve the target. Depending upon the scope method of allocation and other design elements a large number of permits can be used leading to rise in market imperfections.

Large elements of the cap and trade scheme point towards to the acidic rain program that is used under the cap and trade (Dong et al. 2016). The South Coast atmosphere district makes the use of identical model with the objective of RECLAIM program and the European Union followed the identical principles of design. Considering the carbon tax, the CO2 tax earnings might end up being exhausted in the special attention expenditure or priority, which is only nonessential to the climate or sustainability.

Difference between cap and trade and carbon tax

There is high degree of discussion whether the carbon tax or the cap and trade scheme should be applied to decide the excellent method of assigning price on the greenhouse gas pollution. One of the straightforward responses is that it mainly reliant on the each of the designed system. The design decides the efficiency based on the ecological and economic features (Schmalensee and and Stavins 2015). For instance, assessing the determination of the economic enticement is concerned with the objective of reducing the emission and shifting to clean energy. If both the approaches are satisfactorily designed, both the alternatives are very comparable and can even be used in the tandem. The most important thing is that cost on carbon pollution offers an enticement for everybody from industry to household. This ultimately becomes the serious issue in lowering the trap of heat emission with the objective of strengthening the economic sign. A stronger price of carbon will result in boosting the clean growth with renewable energy will help in encouraging the adoption of greener practices.

The state caps an aggregate of Co2 emissions and the related issues that the number of emission is permitted annually. The figure fell down from year to year till the level of emission has reached safe level (Zhu et al. 2017). Companies should acquire permits with the objective of emitting CO3 or bringing the carbon in the state. It is noteworthy to denote that companies can purchase and sell the level of permits. On the other hand, several economists have believed that carbon tax of CO2 is the highly efficient market approach towards climatic change (Wilson 2012). A carbon tax is a tax that is imposed on every component of the greenhouse gas emission and provides the firm with an incentive to cut down the level of pollution when on earth doing so may result in less cost than paying the duty (Xu et al. 2017). The levy is usually set by evaluating the cost or damage that is connected with each unit of pollution and the costs that is associated with the regulating the contamination. Attaining at the tax level correct forms the key as companies and households are most likely to go for paying the tax and may continue to contaminate in excess of and higher than that is most favorable for the humanity.

Both the cap and trade programs and carbon taxes can operate in an improved manner until they are designed with the purpose of presenting a strong economic signal in switching the cleaner energy. However, some differences still prevail. Cap and trade has one key ecological advantage over the carbon tax. It offers additional certainty regarding the reduction in the amount that will result in minor certainty over the cost of emission (He et al. 2016). On the other hand, a carbon tax offers certainty regarding the price however there are certainty regarding the price but there is little certainty concerning the reduction for emission.

The carbon tax possess one of the vital benefit, it is very simple and faster for the governments to put into practice. A carbon tax is very straightforward it can be dependent upon the current administrative constitution for taxing the fuels and can be applied in a period of few months (Cheng and Xiong 2017). In theoretical aspects, the identical is applicable to the cap and trade systems however, in reality they are inclined to be very highly multifaceted. A large sum of time is needed to create the required regulations and they are highly vulnerable to the lobbying and uncertainty. It is noteworthy to denote that cap and trade needs the establishment of an emission in the trading market.

Critical analysis of current and future energy system

Several economists have argued that if the market is left with the options of functioning freely the greenhouse gas emission will be greater in amount as there is inadequate amount of enticement for companies and households to lower the degree of emission. An implementation of carbon tax on each of the unit of greenhouse gases provides the firm with the incentive of cutting the level of pollution. In contrast to this, a system of cap and trade lays down the utmost stage of contamination with a cap and distributes emissions provides permission amongst the companies that generate pollution release (Manikas and Kroes 2015). Organizations should have the authorization of covering every one of the unit of pollution they generate and gain derive the permission either with the help of primary allotment and sale or with the help of trading from the other firms. As large number of companies relatively finds it easy or cheap to slash down the effluence than others trade occurring. At the same time, the maximum amount of pollution is set in advance; the trading cost of obtaining permission fluctuates. This becomes highly expensive when the demand is higher than supply.

Under the centralized situations, carbon taxes, cap, and trade both exactly have the identical result because both are the methods of setting price carbon. Conversely in actuality they are diverse in several ways. With cap and trade has often been the scenario that provides permission free initiatives, this represents a cheaper compliance for industry in the beginning phases of the system (Garcia et al. 2016). This is because they only make the payment for the any additional authorization that are bought from other firms. In contrast to this, with carbon tax there is a huge amount of direct cost for business to disburse on each unit of greenhouse gases that is generated which results in bigger hit on the balance sheet (Eyre 2013). Under the carbon tax, the price of emission of unit of pollution is set but the total sum of emission is relatively lower. Therefore, a tax system make sure that everyone knows the price or charge that is being paid for each of the unit of carbon dioxide that is emitted but the uncertainty level of actual amount of carbon emission.

On the contrary, cap and trade offers assurance regarding the amount of emission but there is insecurity regarding the price of attaining these reductions. If the amount of ecological harm is highly sensitive then it is vital to make sure that the quantity of emission is pointing in the direction of cap and trade (Welford 2016). Equally if the cost of lowering the pollution is highly responsive to the degree of changes in emission it is better to be certain regarding the price of cutting emission, pointing in the direction of tax.

Several economists have provided their recommendations on implementing hybrid model, which might offer the best from the rest (Zhang and Xu 2013). This comprises of imposing a cap on emotions in regulating the amount of effluence but with making adjustment in the mechanism in the form of carbon price floor or ceiling to keep the cost of authorization under the satisfactory bounds. Whoever of these strategies is taken for considerations to place a price on carbon it symbolizes just one of the number of policies that is required to cut down the current greenhouse gases emissions.           

For analyzing the carbon emission energy to a greater extent here for the report integrated assessment model TIAM-UCL will be used for that can be the energy system of the world for the future. (Parry and Williams 2013) states that implementation of this system will bring about 60% benefit in bringing the carbon emission energy level down and meet the goal of 2050 for achieving 2oC target. If the target of 2050 needs to be achieved by developed country like UK by 2030 they need to be in the peak on controlling carbon emission fuel. The per capita carbon emission is to be reduced by 6% in ten years and so for this reason the UK government needs to sign a treaty so that the emission level gets a limit for per capita emission.

Beside following EU environmental norms UK should have control over domestic norms so that per capita carbon emission gets reduced to 2oC- 2.5oC by 2050. To achieve the per capita emission should get reduced from 80% to the proposed level. Emission will get reduced in all areas from irrespective of income levels after 2020 (Zhang and Xu 2013). De-carbonizing some sectors will be tough and for that reason per capita emission of these areas will be a bit high that will get balanced by other areas as bringing changes to these areas is highly cost intensive project.

The per capita carbon emission in UK after 2010 is increasing by 5% compared to 15% in US after implementation of renewable source of energy in some sectors.

Transformation of energy source can be easily implemented for the above reason as the infrastructure is dynamic in nature but it’s not true for all areas (Welford 2016). Therefore, UK can take a lead role in minimizing the global temperature and achieve the target of 2oC by 2050. Freezing the carbon price policy of UK supports the arguments that UK is controlling the emission to some extent after 2014. Proper motivation will enhance the policy to meet the goal of 2050.

In spite of going with global environmental treaty, the move to de-carbonize the electricity sector was a good move for the nation as after 2010 no new coal plant is established that is unabated (Garcia et al. 2016). Although some unabated gas turbine was constructed to be the supplement sources of energy for winter season but later on monitoring lacked failure in the productivity level. For meeting the needs of the residential and commercial sectors by 2050 UK should electrify these areas.

By 2025-2050, the coal and gas plants need to get restructured with carbon capturing technologies. So in a cost effective manner UK should go for de-carbonization in order to bring the change and achieve 2oC target. Wind and solar turbines of capacity 2GW needs to get implanted annually for increasing the energy supply in the electricity division that can drop the carbon intensity to 50gCO2  per kWt by the end of 2035.

The refined bio energy sources will get utilized above 15% by 2050 that is currently running at 2% and it can be imported but needs to be distributed with consistency (Janda and Parag 2012). De-carbonizing aviation industry leads the challenge ahead.

Finally Natural gas can be the main source of energy for UK in the future as gas can be the supplement for coal and this can bring about change in low carbon emission source of energy.

The policy of cap and trade & carbon tax can bring per capita carbon emission down to some good extent by imposing penalties to go for cleaner energy sources in the future (Manikas and Kroes 2015). Cap and trade will be more suitable as the prediction can be done and easily ACCOUNTABLE. Carbon tax is organized to predict the price but calculating the rate of emission is unpredictable by this policy.

Implementing carbon tax policy will be easy and quick process for UK government. So going for a hybrid model can bring about the required change needed to achieve the target of 2050.

Conclusion

For couple of past two decades the energy policy of UK is innovative and the law imposed got activated for reducing carbon emission sources of energy. So in this section the author will draw some suggestion that can make difference in achieving the goal of 2 degree C by 2050.

De-carbonization: going for a energy system change can bring about huge challenges like the recession in 2008-2009 while the energy got shifted from carbon to gas. So the country should meet the 2^nd and 3^rd carbon budget by the year 2023 and beside that renewable energy target should be achieved for going ahead with the 2050 target. Near about investment of £100 is required in the energy system of UK so the country should cope with the policy to make the change happen with better support (HMT 2013). Before going for renewable source of energy the energy efficiency system needs to get restructured as this will reduce the energy demand and balance the energy demand and supply in the future.

Security: for securing the future energy system of UK the following strategies should be taken into account:

• Promised investment in the electricity sectors with proper infrastructure development in storing gas should be done by UK government.
• Energy required in residential purpose should get electrified instead of using oil and gas.
• The UK policies should emphasize on energy efficiency system instead of focusing on energy demand.

The above strategies will motivate to go for investment in the electricity sector and simultaneously to move with bio fuel in the future to meet 2degree C slot by 2050.

References

Du, S., Ma, F., Fu, Z., Zhu, L. and Zhang, J., 2015. Game-theoretic analysis for an emission-dependent supply chain in a ‘cap-and-trade’system. Annals of Operations Research, 228(1), pp.135-149.

Agee, M.D., Atkinson, S.E., Crocker, T.D. and Williams, J.W., 2014. Non-separable pollution control: implications for a CO 2 emissions cap and trade system. Resource and Energy Economics, 36(1), pp.64-82.

Goulder, L.H. and Schein, A.R., 2013. Carbon taxes versus cap and trade: a critical review. Climate Change Economics, 4(03), p.1350010.

Dong, C., Shen, B., Chow, P.S., Yang, L. and Ng, C.T., 2016. Sustainability investment under cap-and-trade regulation. Annals of Operations Research, 240(2), pp.509-531.

Schmalensee, R. and Stavins, R., 2015. Lessons learned from three decades of experience with cap-and-trade (No. w21742). National Bureau of Economic Research.

Zhu, L., Zhou, J., Yu, Y. and Zhu, J., 2017. Emission-Dependent Production for Environment-Aware Demand in Cap-and-Trade System. Journal of Advanced Manufacturing Systems, 16(01), pp.67-80.

Xu, X., Zhang, W., He, P. and Xu, X., 2017. Production and pricing problems in make-to-order supply chain with cap-and-trade regulation. Omega, 66, pp.248-257.

He, H., Luo, Z., Ma, C. and Yu, H., 2016, July. Production strategy with substitution under cap-and-trade regulation. In Logistics, Informatics and Service Sciences (LISS), 2016 International Conference on (pp. 1-5). IEEE.

Cheng, Y. and Xiong, Z., 2017, May. Strategic investment in low-carbon technology and optimal production under carbon cap-and-trade regulation. In Control And Decision Conference (CCDC), 2017 29th Chinese (pp. 6567-6573). IEEE.

Manikas, A.S. and Kroes, J.R., 2015. A newsvendor approach to compliance and production under cap and trade emissions regulation. International Journal of Production Economics, 159, pp.274-284.

Garcia-Alvarado, M., Paquet, M. and Chaabane, A., 2016. Joint strategic and tactical planning under the dynamics of a cap-and-trade scheme. IFAC-PapersOnLine, 49(12), pp.622-627.

Welford, R. ed., 2016. Corporate Environmental Management 2: Culture and Organization. Routledge.

Zhang, B. and Xu, L., 2013. Multi-item production planning with carbon cap and trade mechanism. International Journal of Production Economics, 144(1), pp.118-127.

Parry, I.W. and Williams III, R.C., 2013. Efficiency and distributional trade-offs in recycling carbon cap-and-trade revenues. BEJ Econ. Anal. Policy.