Uniform Carbon Pricing Implementation

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Table of Contents

Introduction
Making the emitters pay
Price inducements work
The challenge of settling on the right price
Conclusions
Recommendations
Implementation
Reference List

Introduction

In Australia, a carbon-pricing scheme is usually known as the Carbon Tax Scheme (CTS). The scheme was unveiled in July 2012. This scheme calls for businesses producing more than twenty-five thousand tones of carbon dioxide corresponding emissions per annum to acquire emissions permits.

The aim of this report is to discourage emissions of greenhouse gases, “which pose a serious threat due to the cause of man made climatic change” (Adeyemi, & Hunt, 2007, p. 696). To begin with, the cost of a permit for a tone of carbon is set at A$23 for the financial year 2012-2013, with limitless permits being accessible from the Government.

The set charge will then increase by 2.5% every year, until a shift to an Emissions Trading Scheme (ETS) in the financial year 2015-2016, when the obtainable permits will be restricted corresponding to a pollution cap. Carbon pricing is a “fraction of a wide energy transformation package referred to as Clean Energy Plan (CEP), which focuses at encouraging outstanding emitters in Australia and internationally in general to lessen their emissions and advance in sustainable energy” (Fischer & Newell, 2008, p.154).

Two of the major targets of the CEP are to decrease emissions of greenhouse gas by five per cent lower than 2000 points, by the year 2020, and an additional decrease of eighty per cent lower than 2000 points, by the year 2050. The Clean Energy Regulator (CER) will manage the scheme (Adeyemi, & Hunt, 2007, pp. 697-709).

The income based on the charge is financing recompense to households and industries. This report discusses carbon pricing, explains the need for uniform carbon pricing, and proposes ways and implementations in which that feature of the problem may be tackled. A uniform carbon pricing is necessary to end problems of climate change and global warming.

Making the emitters pay

The rising pollutions of greenhouse gases occur because of human actions that include production of electricity, clearing of forests, and driving of motor vehicles. These actions have resulted to troubled equilibrium involving the way in to the environment of greenhouse gases and their elimination by take up in oceans and land and via chemical transformation.

The increasing concentrations of these gases are yielding climate variations and global warming thereby resulting to broad extent of possible consequences on the atmosphere, economies and communities (Bowen, & Stern, 2010, pp. 137-140). These consequences will vary by time and place. It is probable that most of the consequences will be terrible. The risk of appalling results escalates with the temperature variations.

The emitters of green house gases are thus indubitably attracting potentially enormous costs on other individuals with time. Nevertheless, the polluters do not have to take up the outcomes of their individual activities, via markets or any other means, save for the intervention of policy makers. If policy makers intervene, the emitters will be put off from polluting as much.

As a result, the products made by the emitters will turn out to be more expensive decreasing their demand (Bowen, & Stern, 2010, pp. 141-145). On the same note, imposition of charges will as well encourage novelty of less costly, less polluting means of offering similar products; this denotes a crucial instance for putting a charge on emissions of greenhouse gases by purposeful strategy measures.

The greenhouse gases emitted through economic actions mix fast with other gases present in the air and the majority of these remain in the air for long durations. Consequently, great amounts of carbon dioxide emitted presently will have virtually the same force on climate variations whether its origin was in Australia, the United States, or London.

Whatever the charges are, they are alike with no regard to the place of greenhouse gases emission causing assumption in favour of identical international pricing of whichever greenhouse gas (Bowen, & Stern, 2010, pp. 146-150). A massive challenge is thus presented to the world community to carry out the joint action essential to put forward a similar carbon price internationally, and administer the results of worldwide allocation of income.

Unlike greenhouse gases have unlike consequences on global warming and exist in the air for varying durations, thus the charge acquired for every tonne of emissions differ as per the concerned gas. However, as the charges can be presented as a set multiple of the charges acquired by a carbon dioxide tonne, carbon pricing has developed. The concept of externalities internalisation by fixing a cost on them dates back to the beginning of the 20th century.

The rule of this pricing is to equate the damage caused (or advantage presented) at the scope by the by the action bringing about the externality together with the cost imposed on (or obtained by) the industry carrying out that action. The aim is to vary the level of the action until this equilibrium is achieved (Bowen, & Stern, 2010, pp. 151-163). Simultaneously, the cost alters the mode of inducements for potential venture, innovation, and utilisation, guiding these three far from negative actions and towards positive ones.

Price inducements work

Practical proof illustrates that cost alterations do change conduct. If the price is fixed evenly across the financial system for carbon dioxide, these consequences will be invasive, devoid of policy makers themselves discovering instances of chances for abatement.

If a government attempted to assign particular quotas to every emitter of greenhouse gases, and the emitters stick exactly to their quotas, it is enormously improbable that the decrease in emissions of these gases could be attained at minimum cost (Edenhofer, Bauer, & Kriegler, 2005, pp. 277-280). The government would lack accurate knowledge concerning the way charges of abatement differed across businesses.

The challenge of settling on the right price

The carbon price ought to reveal the maximum charge of emitting an additional unit of greenhouse gas (for instance, carbon dioxide) calculated according to its carbon dioxide correspondent. Income-maximising businesses will decrease their emission of greenhouse gases to the level where loss of income from decreasing emissions, by an additional unit (maximum abatement charge), immediately begins to surpass the cost it must pay for maintained emission of that unit.

The difficulty that policy makers are facing is the determination of the marginal abatement cost, which theoretically ought to be placed at the marginal harm charge of a single unit of emissions; to be precise, the current worth of the economic charge brought about by an additional unit of greenhouse gas when in the atmosphere. With regard to carbon dioxide, social cost of carbon denotes the marginal cost (Edenhofer, Bauer, & Kriegler, 2005, pp. 281-285).

Nevertheless, it is extremely a hard exercise to approximate the social cost of carbon. The problem comes up since numerous serious doubts in approximating the current worth of the economic caused by carbon dioxide when in the atmosphere, comprising doubts concerning the science (warming as a result of emissions of greenhouse gases as well as environmental alterations accompanying warming).

Doubts concerning economic force of climate alteration cause this problem as well. In addition, the extended residence period of greenhouse gases in environment makes the doubts bigger. The sluggish eradication of greenhouse gases as well offers an ethical alternative for policy makers (Edenhofer, Bauer, & Kriegler, 2005, pp. 286-292).

The problems of assessing all aspects and concurring on ethical perspectives taken have brought about a wide extent of approximates of the social cost of carbon and practical arguments amid economists.

Strategies as well must consider the charges of restricting the risk of human induced climate alteration via diminution of emissions. Similar to the social cost of carbon, numerous aspects control marginal abatement costs.

Some of the aspects comprise possible low-carbon future advancement, likelihood of key scientific breakthroughs, and the effortlessness of surrogating low-carbon merchandises for presently high-carbon merchandises. According to diverse time horizons, these aspects are liable of varying effects (Fankhauser, Hepburn, & Park, 2010, pp. 209-225).

Conclusions

The issues surrounding climate change is a quickly developing topic. It is evident that, in the quest to cut down greenhouse gas emissions in a cost efficient manner, a uniform international price on greenhouse gases could be necessary (Fischer, 2008, pp. 487-502). It could work as a pervasive support for businesses to alter their undertaking, and for clients to change their mode of spending from high-carbon merchandises.

In the nonexistence of a powerful binding global concurrence, it is nonetheless vital that policymakers move progressively towards a widely equal carbon price across industries, so that alteration price might spread effectively across economies, and thereby reduced. Policymakers do not have a clear and effective way of letting businesses know the role and structure of carbon pricing.

Policymakers must therefore explain clearly the character of market failure (Fischer, & Newell, 2008, pp. 142-162). Public backing and acceptance could be jeopardized by a failure to explain the rationale of carbon pricing with respect to the emitter-pays principle.

Recommendations

It would be of immense benefit to come up with hybrid systems with constituents of both amount and cost controls. The general rule should be to permit some level of response of both amount and cost to unanticipated blows to marginal abatement prices, as well as economic actions.

Governments should tie-up the time outline of carbon pricing through the announcement of a course for the tax rate or announcement of a plan for quota allotments in the future, in the case of traded quota.

Permitting quotas for various years for trading in advance is necessary to assist in the establishment of an anticipated time profile (Hepburn, 2006, pp. 226-247). For governments persuaded of the need for strong activity on changes in climate, they ought to take into consideration border pricing amendments to deal with aggressiveness effects.

They could impose the carbon price on internal emissions as well as carbon track of imports, the same way exercise taxes are levied on both internally generated and imported fuels. Seeking conclusion of business-sector concurrences internationally should be done, while stressing on sharing excellent practice in low-carbon expertise to carry out alteration simpler for lower-productivity nations, which may otherwise be lured to competing more violently on price.

Implementation

The governments of every country can impose a uniform tax on carbon (or correspondent of carbon) content. Governments can initiate quota methods where the aggregate intensity of emissions set by the quotas is fixed identical to the needed intensity of entire emissions and each quota is tradable (Helm, Hepburn, & Mash, 2003, pp. 438-450).

In a reasonable marketplace, the cost of a quota of a tonne could be consistent and equivalent to the cutting emissions of another tonne alongside the cost they have to pay for a quota when they emit the tonne.

Controls on emissions industry by industry, devoid of trading of quotas, could contrary bring various marginal abatement charges across industries that could not be cost efficient (Huntington, 2006, pp. 1-7). Similar reductions of emissions would be achieved at less charge through low-cost businesses undertaking more abatement, in addition to having high-cost businesses undertaking less.

Reference List

Adeyemi, O. I., & Hunt, L. (2007). Modelling OECD industrial energy demand: asymmetric price responses and technical change. Energy Economics, 29, 693–709.

Bowen, A., & Stern, N. (2010). Environmental policy and the economic downturn. Oxford Review of Economic Policy, 26, 137–163.

Edenhofer, O., Bauer, N., & Kriegler, E. (2005). The impact of technological change on climate protection and welfare: insights from the model MIND. Ecological Economics, 54, 277–292.

Fankhauser, S., Hepburn, C., & Park, J. (2010). Combining multiple climate policy instruments: how not to do it. Climate Change Economics, 1 (3), 209–225.

Fischer, C. (2008). Emissions pricing, spillovers, and public investment in environmentally friendly technologies. Energy Economics, 30 (2), 487–502.

Fischer, C., & Newell, R.G. (2008). Environmental and technology policies for climate mitigation. Journal of Environmental Economics and Management, 55, 142–162.

Helm, D., Hepburn, C., & Mash, R. (2003). Credible carbon policy. Oxford Review of Economic Policy, 19 (3), 438–450.

Hepburn, C. 2006. Regulation by prices, quantities, or both: a review of instrument choice. Oxford Review of Economic Policy, 22 (2), 226–247.

Huntington, H.G. (2006). A note on price asymmetry as induced technical change. The Energy Journal, 27 (3), 1–7.

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