Carbon Trading: Solution or Chimera
University of Melbourne - Department of Finance; Financial Research Network (FIRN)
July 3, 2007
This article responds to growing interest in carbon emissions trading to reduce the concentration of greenhouse gases in the atmosphere. It identifies the objectives and performance criteria of a price mechanism to regulate global emissions, and then compares the two most commonly proposed solutions, which are a carbon tax and emissions trading. The analysis concludes the more efficient policy is to set emission limits for each country, and then extend existing excise systems to impose a tax on carbon consumption that achieves the emissions target. An international trading scheme is simply too complex, too expensive because of the new infrastructure required to handle emission permits, and too risky because of inevitable weaknesses in emissions markets.
Number of Pages in PDF File: 12
Keywords: Carbon trading, climate change
JEL Classification: D45, H23, Q25
Date posted: July 5, 2007