Editorial #13 – Tax it, cap it, trade it

Canada is one of the world’s worst per-capita producers of greenhouse gases, and it seems everyone has a plan to bring our emissions down. There is lots of talk lately about carbon taxes and cap-and-trade systems, but what are they? These systems offer incentives for emissions reduction with an economic carrot-and-stick, in the case of cap-and-trade, or just a stick, as in carbon taxes.

After the embarrassing charade that was the Copenhagen Climate Summit, many Canadians – myself included – are becoming disenchanted with the possibility of the international community ever coming to an agreement on how to reduce global greenhouse gas emissions. However, this international stagnation leaves Canada in a position to get a leg up on the rest of the world while the going’s good. What we need is a way to make low-energy choices actually appealing to Canadian wallets, not just to their consciences.

The cap-and-trade system is based on an industry emissions cap being set, and credits issued or sold to polluters; these credits can be used to “pay” for emissions over the set level, or sold to the company’s competitors on an open market. This gives two tangible reasons for companies to reduce emissions: the companies can save money on credits, and even make profit off of less “green” competitors by selling credits to them. The downside is that the open-market approach allows prices for credits to fluctuate wildly, and this can hurt smaller businesses.

A carbon tax can be applied either to the consumer goods and services themselves, or to the producers of the goods (with the cost generally being passed along to the consumers). This encourages companies to produce their goods and services in a more efficient manner, in order to pass on a lower cost to consumers and thus make them more competitive. As compared to the cap-and-trade system, the effect on industry is more controlled, being a tax, and the money can be put to whatever use is determined to be best, such as research programs or consumer rebates.

In both cases, a major bonus is that these economic measures level the playing field, giving low-emissions industry a chance to bloom. At the moment, oil and gas are incredibly cheap, despite our moaning at the pump, and the costs for these energy sources do not yet reflect their associated environmental costs or their dwindling supply.

The benefits of manifesting those environmental costs in a dollar amount would therefore be twofold: higher costs for high-emissions goods and services would reduce their unnecessary usage, and the comparative costs for sustainable energy sources would be much lower, giving them a chance to catch on.

For example, solar energy has come a long way, and it is on the brink of being economically competitive with conventional energy: fossil fuels such as oil, coal and natural gas. If the CO2 emissions from fossil fuels are taxed, this energy will cost more, and solar energy will get the boost it needs to enter the marketplace as a serious energy player.

It is not only alternative energy sources that will benefit, however. More efficient technologies already exist for the burning of coal, for instance, but these technologies are not yet economically feasible with oil at low current prices. If oil were more expensive, cleaner-burning coal plants would become not just the clear choice for the environment, but for the economy as well.

The caveat to all of this is that we have to make these economic incentives large enough to actually make an impact. Half-heartedly appeasing environmentally concerned groups while carefully preserving the business status quo will simply leave us in the dust while other nations, mindful of the potential for green business development, reap the rewards of a responsible economic movement.

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