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Cap-And-Trade: The Tried-And-True Way To Reduce Corporate Emissions

Technological innovation has provided us with many creative ways to mitigate and adapt to climate change as we are beginning to feel some of the catastrophic effects it has in store for us. It’s great to see companies finding new ways to harvest energy from things like waves, improve solar power, and find cleaner methods of transportation. However, while these are great ways to create alternatives to the status quo, none can be implemented on a large scale yet, because the technology is not mature yet and because of the sheer amount of bureaucratic red tape hampering any measure against fossil fuels. What needs to be done first is to improve on existing measures that directly reduce emissions, such as policy initiatives. The two that are discussed the most are the Carbon Tax and cap-and-trade policies.

A Carbon Tax is a tax levied on corporations and businesses, set up so that there is a price on the emissions created by the corporation. Considering that only 100 corporations are responsible for 71% of global Carbon Dioxide emissions, it would be fair that they pay for the effects that their emissions will have on billions of people.

In theory, a Carbon Tax seems like the perfect corporate solution to lower emissions. It incentivizes corporations to decrease their emissions, and that money can be used towards publicly funded measures to mitigate climate change. In practice, however, it’s a bit more tricky.

When it comes to levying taxes in the United States, there’s always the issue of corporate responsibility. Keeping the partisan politics that may prevent levying a tax in the first place aside, there’s the issue of tax avoidance. Tax avoidance, not to be confused with tax evasion, is where companies take advantage of legal loopholes that allow them to pay fewer taxes than required or none at all. Tax avoidance has become an issue that has even reached the Senate. Levying another form of tax will inevitably lead to more legal loopholes and more legal battles that may end up being more expensive than the tax itself.

If Taxing Carbon Won’t Work, What Will?

Taxation has always been seen as a way to incentivize a group of consumers or producers to stop a certain action. However, considering its limitations, a solution that may be a better alternative to the traditional Carbon Tax is what is called a cap-and-trade program. A cap-and-trade program (CAT) involves a government setting a firm emissions limit on corporations and industries, with legal ramifications for exceeding the cap. The cap would decrease with time, ensuring that corporations decrease their emissions. The trade aspect of this CAT program would allow companies to buy and sell emissions allowances, creating a market for companies that are able to cut their emissions first.

This compares to a Carbon Tax in that it is legislation that sets a hard limit to emissions, meaning emissions will be made at predetermined levels. A Carbon Tax relies on companies to decrease emissions on their own accord, and just pay for their emissions. Considering the companies that emit the most are also some of the most profitable, their profits may outweigh anything they lose in a tax, so they have no real intrinsic motivation to decrease emissions. The legal pressure of a cap-and-trade program would provide much stronger external pressure by comparison.

This sounds nice in theory… but will it ever work?

A cap-and-trade program is not a faraway thought. In fact, California has had a CAT program in place since 2013 and has made significant headway since then. The state made a goal to decrease emissions to 1990 levels by 2020, which they met in 2016. The cap and trade program contributed to this emissions reduction. Because of this, California has goals to reach 80% below 1990 emissions levels by 2050, as well as 100% Carbon-free electricity by 2045.

https://priceoncarbon.org/california-cap-and-trade/

If a CAT program has worked in the fifth-largest economy in the world without reducing economic output, this can be a signal for wealthier nations to implement these programs to curb emissions and hopefully stop the ever-worsening effects of climate change.

Is there anything that I can do?

It’s easy to feel like a pawn in a bigger political game in this country, especially when the theatrics of an election year is underway, and staying inside doesn’t help either. However, we can use the election year to our advantage.

Getting federal legislation passed is quite difficult. Only 1% of legislation introduced in Congress becomes enacted into law. But election years are not limited to federal officials, many state politicians are up for election or re-election. California has shown that even though the federal government may not be inclined to implement a CAT program, state governments can implement such programs with tangible results. This year, researching candidate policy and voting for candidates that are in favor of CAT programs within their states can go a long way. Keeping environmentally-conscious candidates in our state legislatures can at least allow for emissions reductions on a smaller scale, especially when it feels like large-scale emissions control is out of our reach.

Given the legal and financial practicality of CAT programs over a Carbon Tax, it seems that we have found an accountable solution to making corporations reduce their emissions. Hopefully, our legislators see that as well.

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