Pricing Carbon: Why We Should Tax to Reduce Emissions
And why carbon credit cap-and-trade schemes might not be as useful.
There is no denying that we are currently in a climate crisis. Temperatures all around the world are increasing. Forests are dying and becoming net emitters of carbon due to large-scale wildfires. Ocean levels are rising while plant and animal species are dying off at alarming rates.
Yet, change is not coming fast enough. Global demand for coal continues to rise, while the annual Earth Overshoot Day continues to happen earlier and earlier (it fell on 2 August in 2023, marking the date when all the biological resources that the Earth can renew during the entire year are used up).
For all the talk about “market forces” working to make everything more efficient, society continues to pollute at an unsustainable pace.
This is where carbon pricing can come in.
What is Carbon Pricing?
Carbon pricing basically works by ‘pricing’ in the carbon used (hence the name). As a market-based strategy, a society that adopts carbon pricing charges the external costs of emitting carbon (think of the social and environmental costs) to the source of the emissions.