There is no question that the Ontario government needs to regulate carbon emissions. Despite people who don’t believe human production of CO2 in the atmosphere has any correlation with the climate, there is indisputable evidence to the contrary at this point that is impossible to ignore. Companies that willfully produce extreme amounts of carbon emissions do so because there are no consequences, or the consequences do not outweigh the benefits of doing it. It is for this reason that the government needs to get involved and actively limit the amount of emissions a business can lawfully produce. There are, however, better and worse ways to go about doing this. I posit that the best option for reducing the emissions produced in the province is through cap and trade.
It’s likely that you’ve heard the term “cap-and-trade” before, but what does it actually mean? In plain terms, the government sets a cap on carbon emissions and anything over this limit is then penalized. The cap is typically reduced each year, prompting businesses to take action to continually reduce emissions. The trading aspect is to do with pollution quotas distributed by the government. The total cap is divided into quotas which it gives or sells to businesses, and which a business can sell to another business if they are going to be under their limit. This creates a double incentive of a fine for exceeding and a reward for being below the cap.
It’s possible you think this is unfair, especially to smaller businesses, but the program is only mandatory if the company produces more than 25,000 tonnes of greenhouse gas emissions. To put that in perspective, it would take driving a Honda Civic approximately 140,817,600 km to generate 25,000 tonnes of CO2 emissions*. That’s an insane amount of emissions. And the caps aren’t equal across the board, they’re industry-dependent, so clothing vs automotive production for example will have different caps placed on them.
Of course, the main target of the caps are CO2 and other greenhouse gases (GHGs), but the government can cap pollutants that cause smog as well.
In the words of the VP of Global Climate, “Cap and trade lets the market find the cheapest way to cut emissions”, so it’s really benefiting the companies as well. To get anywhere with climate preservation, companies need to find it too expensive to keep going as they are now, producing emissions without a care. But we also have to do it in a way that doesn’t force companies to pack up and head for a cheaper environment which will let them produce emissions and not be penalized. Cap and trade is the best way to do this because it provides so many financial incentives to reduce emissions, that a company doesn’t need to go elsewhere. Cap and trade instead creates a competitive environment where companies actively work to reduce emissions, rather than accepting a small tax.
I can see you might be skeptical, sure it SOUNDS good, but what proof is there that something like this would actually work? Well, in the 1980s North America had a major problem with acid rain. You may have heard stories of acid rain killing entire lakes, denuding forests, destroying crops, and even damaging buildings. The reason I can say that you may have heard stories is because, thanks to a cap and trade program introduced in the States to reduce sulfur dioxide and nitrous oxide pollution, this is no longer a major concern. Cap and trade successfully stopped acid rain.
It’s possible I’ve convinced you that cap and trade is a good system, but you may want to know in what way, is cap and trade preferable to an option like carbon taxes? It’s true that cap and trade promotes green infrastructure development and use – always a good thing – but this can be costly in the short run. The problem with a carbon tax is that it’s easy in the short run, it’s a friendly option to businesses already used to paying tax … it’s also an easy option in the long run though. In economics this term we’re learning about how it can be easy to write off an expense like a carbon tax to the consumer without changing company practices. Sure the government gets a bit more cash, but you’re not solving the problem! Increase the tax too much and the companies leave, but set it too low and the company won’t even care. It’s a lose-lose situation, there’s no incentive.
You may be thinking that I’m talking a lot about money in this article, but to be honest, that’s what everything comes down to in a capitalist country; what is the bottom line? The bottom line is efficiency and maximizing profit. Cap and trade, unlike a carbon tax, offers a way to actually make a difference in emissions without harming a company enough to send them packing. I hope I helped to convince you of that.
*From Planet Honda and Car Talk