GhgCap

From Energy-Experts

[edit] A cap on greenhouse gas emissions

Introduction

There is general agreement that there should be a cap on annual GHG (greenhouse gas) emissions. The annual cap should be set by government, based on scientific advice. Three main schemes are frequently proposed to implement this cap:

• Emissions Trading - GHG allowances are issued, and each allowance allows the bearer to release a certain amount of GHGs. The allowances can be traded.

• Emissions Tax - An amount of money must be paid for each kg of GHGs that are emitted. The amount would be set in the same way that the Bank of England MPC sets UK interest rates.

• Rationing - Each person receives a personal allocation of GHG credits. For each transaction, there is a GHG cost as well as a monetary cost.

Rationing

Rationing is fair, because we should all be equally contrained in our pollution of the atmosphere. Under this proposal, a GHG cost would be assigned to each transaction. A whole GHG accounting system would be developed to work in parallel with the financial system. [Note can someone who is a supporter of rationing give an explanation here of how it would work in practice]

I think that the cost of creating a functioning rationing bureaucracy would be prohibitively great.

Trade versus Tax

A graph can be drawn of additional constraint against additional cost for GHG emissions:

external image cost-constraint.PNG

The graphs shows that as GHGs are additionally constrained, their additional price goes up. Emissions trading consists of fixing the additional contraint (point B) which gives an additional price (point A). An emissions tax fixes the additional price (point A) to give the additional constraint (point B).

The actual graph isn't known, and so this is an advantage for Trading because the additional contraint is set directly, whereas with a Tax we'd have to guess the tax every month.

How do the two schemes compare in terms of administrative complexity? Here Tax has the advantage. With Trading you'd have do all the administration required of a Tax, plus the extra bureaucracy of running the trading system.

To me, the right choice is a Tax.

Who should get the money from the Tax?

The revenue should be shared equally between all the citizens. The scheme could be called GreenhouseTaxBack. Organizations would not get a share of the revenue, only individuals.

Note that this differs from EU-ETS where the revenue goes to the generators.

Unilateral or Multilateral?

Many people would agree that a multilateral agreement is preferable, but if we don't get that agreement, should we unilaterally adopt a GHG cap? I don't think so, because it would mean that other states would have a competitive advantage in not having a GHG cap, which would make them less likely to do so.