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Carbon Pricing
Carbon based pollution
Carbon Dioxide (CO2) is one of the greenhouse gases (GHGs) believed to be responsible for the warming up of our planet. Other GHGs that are also carbon based are: Methane (CH4); Hydrofluorocarbons (HFCs); and Perfluorocarbons (PFCs). These gases are released to the environment (causing pollution) through the burning of carbon-based fossil fuels (coal, oil, natural gas, shale oil/gas and oil sands). Fossil fuels are burned to power plants for electricty supply and heating, fuel tranportation and other industrial activities.
Carbon pricing or Putting a price on Carbon
Pollution comes at a price. The price is the damages it causes to the environment. Carbon pricing is a mechanism that places price on carbon to correct the negative impact of the pollution on the environment. It allots price to every tonne of carbon pollution generated by a company or any organization for that matter. The total cost of production is the actual cost of production plus the environmental cost as a result of the pollution.
Total cost = Actual cost + Carbon (or Environmental) Cost
Over fifty world governments are currently using various forms of carbon pricing to put breaks on carbon emission generation. Some of these countries are, United Kingdom, Sweden, and Canada. The 2 major forms of Carbon Pricing are Carbon Tax and Cap and Trade. Some countries adopt one or the other while some adopt both. These 2 carbon pricing systems are further explained below.
Producers tend to pass carbon cost on to the consumer by increasing sale prices. However, a producer needs to lower the carbon cost so as to reduce his sale price and remain competitive. To lower the carbon cost, the producer must reduce carbon pollution by adopting carbon efficient services and systems and embracing renewable energy solutions. Whether a producer is able to pass the carbon tax to the consumer or not, carbon pricing is an instrument that could potentially desuade a producer from continuously pollute the environment. It will control the manner and the quantity of carbon pollution generated by organizations.
Carbon Tax
Carbon tax is a form of levy charged companies/organizations generating carbon pollution through fossil fuel consumption. It is a direct cost on carbon emissions. Companies or organizations are charged certain amount of money per tonne of carbon pollution generated.
Carbon tax increases the price of gasoline, diesel and coal slowly over time so that people can adjust. The money raised from the increased pricing can be used to develop green technologies or for tax breaks. In Canada, the vast majority of people actually stand to make money from carbon tax through government rebates.
Carbon tax could lead to decline in carbon emissions as fossil fuel consumers reduce consumption due to increased fuel costs as a result of the carbon tax. Producers, in order to reduce carbon tax, become more energy efficient and innovative. Some of the countries that have experienced reduction in carbon emissions as a result of carbon tax include:
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Sweden – introduced carbon tax in 1991 - $161 per ton ( has decreased carbon emission by 25%)
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UK introduced carbon tax on electricity in 2013 - $29 per ton. The country’s reliance on coal power has reduced from 40% to less than 1%
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Canada (British Columbia) introduced carbon tax of $40 per ton in 2008. This has led to drop in emissions by 5 – 15%
Carbon tax also provides revenue for the government; the revenue could be used to drive energy efficiency and environmental friendly projects.
Cap and Trade
Cap and trade system allows each entity (company, organization or country) to purchase some pre-assigned credits to pollute. Companies that use up their credits (i.e. reach their cap or pollution limit) can purchase additional credits from others that have not reached their limits. Another name that has been used to describe cap and trade is emissions trading
Similar to carbon tax, cap and trade reduces emissions, drive energy efficiency and provide government revenue that could be used to carry out environmentally friendly projects.
References and other related internal links:
Pacific institute for climate solutions
Pricing Carbon - The World Bank
Pricing Carbon Emissions - David Suzuki
Ten sure ways to save on your home energy bill and help reduce global warming
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