Regulatory Approaches to Carbon Emissions: A Comprehensive Analysis

This report provides a comparative analysis of regulatory approaches to carbon emissions, focusing on carbon tax and carbon trading (cap and trade) mechanisms. The report begins by defining carbon emissions and their impact on global warming, highlighting Canada's emission levels and the role of fossil fuels. It then delves into the specifics of carbon tax, explaining its function as a fee on fossil fuels to incentivize emission reduction, its advantages such as revenue generation and ease of administration, and its potential drawbacks. The report contrasts carbon tax with carbon trading, also known as cap and trade, which sets a limit on emissions and allows companies to trade permits. It explores the advantages of cap and trade, such as government control over emission levels, and its disadvantages, including complexity and potential for manipulation. The report concludes by comparing the two approaches, arguing in favor of carbon tax due to its price certainty and administrative ease, while also acknowledging the potential of hybrid approaches. Furthermore, it suggests alternative methods to regulate carbon emissions like measuring carbon footprint and encourages the use of public transport and energy efficient buildings to reduce carbon footprint.

Running head: REGULATORY APPROACHES TO CARBON EMISSIONS
Regulatory approaches to carbon emissions
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1REGULATORY APPROACHES TO CARBON EMISSIONS
Carbon emission is the release of the harmful carbon dioxide into the Earth’s
environment. Due to the burning of the large amounts of fossil fuels such as coal and
petroleum, and with the destruction of the green forests the emission of carbon dioxide in the
atmosphere have increased rapidly. Large amount of CO2 emission, along with the other
gases are responsible for the increased global warming. In 2016, the five largest emitting
countries which accounted for 51% of the world population, were the United States, China,
India, the Russian Federation and Japan.. All of these nations together were responsible for
68% of the emission of CO2. Canada is itself responsible for the emission of 716 megatons of
carbon dioxide (Olivier, Schure and Peters, 2017). The maximum of the carbon emissions
result from the combustion of fossil fuels and cement production.
The fee that has been levied over the combustion of the fuels based on carbon
emission that include coal, oil and gas is termed as Carbon tax. It is basically a core policy
that aims in the reduction and the elimination of the excessive use of fossil fuels which would
help in stabilizing the climate and reduce destruction. The tax is mainly charged on fossil
fuels based on the amount of carbon they have emitted during combustion. Imposing the
carbon tax allows the consumers and the producers to enjoy a monetary incentive which
eventually encourages them to trim down the quantity of carbon emissions. In accordance
with this, the carbon tax proposals include exclusions for the businesses that are dependent on
export, in order to facilitate them to remain in competion in the global market. The Federal
Carbon Tax which comes under the Part I of the Greenhouse Gas Pollution Pricing Act
(GGPPA), Canada, would be applicable over a person who would purchase fuel on a tax-
exempt basis, if any individual burns the combustible waste in a listed province for energy
production, or even if a person removes fuels from any covered facility. The tax rates for
Canada are levied on a rate of $20 per tonne of CO2 emission in the year of 2019. However it
shall increase to $50 per tonne by the year 2022 (Liu et al., 2018). The imposition of carbon

2REGULATORY APPROACHES TO CARBON EMISSIONS
tax is for the purpose of lowering of the greenhouse gas emissions. Imposition of carbon tax
on the people encourages them to use alternative usage of energies. Thus it is cost-
competitive with cheaper fuels. The carbon tax helps to raise the money that supports the
different environmental programmes and also issue them as a refund (Makholm, 2015). This
eventually helps in the progressive tax-shifting. Also the tax burdens are shifted from the
federal income tax and the state sales tax. Since the carbon tax imposed by the government is
a fixed price over the carbon, everyone must be paying it. It is relatively easier to administer
and comprehend the policy as everyone pays the exact same price for the combustion of
carbon. However apart from it advantages, it does have certain negatives. It does not set an
exact amount on the emissions (Tietenberg, 2013). The price is just set by the government
and the common public is expected to perform the rest of the activities. Canada is in a severe
risk and the problem of carbon emissions is quite acute.
Carbon trading is a process which is also aimed at effective control of carbon dioxide
pollution. It also provides economic incentives in order to achieve the goal of emission
reduction. Carbon trading is usually administered under the authority of any international
organization or government. Unlike the carbon tax, carbon trading involves a set limit or cap
over the amount of carbon dioxide emission. It is often called “cap and trade” (Filgueira et
al., 2015). After capping the amount of carbon emission, a permit is imposed by the
government over the companies specifying their limit of combustion. If any company wants
to burn more carbon, than what is permitted to it, there is a requirement of it to seek extra
permits from the other companies who have burned less carbon (Almutairi & Elhedhli, 2014).
Cap and trade gives the government more mechanisms in order to target the cost to industry,
not only the individuals. The advantages of carbon trading is that the government can have a
dictating power over the exact amount of carbon and greenhouse emissions and have the
authority to modify the sale of carbon permits in order to reach its reduction goals. However

3REGULATORY APPROACHES TO CARBON EMISSIONS
it also does possess certain cons, apart from its pros. This policy is more complex than the
carbon tax. The policy can also be violated by the companies. The companies can over report
the amount of carbon emissions which would eventually lead the government to raise the
permits and as a result the purpose of the policy would not be fulfilled. Secondly, the
allocation of permits by the governments would result in the unfair and impartial results
among the companies.
There has been enough debate regarding which is the more preferred carbon emission
regulations. A carbon tax is the fee that directly establishes the price over the greenhouse gas
emissions (Goulder and Schein, 2013). Thus the companies and the firms are bound to pay
the charged amount for every ton of carbon they produce. Thus the imposition of a carbon tax
is more useful in order to reach its proposed aim of reduction of emissions. On the other
hand, carbon trading or the cap and trade programme involves the issue of “allowances” or
“permits” every year which can be subjected top auction to the highest bidder, creating a
carbon price. The carbon tax on each tonne of emission of greenhouse gas is the most
preferred choice (Xu, Xu& He, 2016). However, a hybrid combination of both the carbon
pricing and the allowances of cap-and-trade programme might also be the best for a nation as
it might satisfactorily achieve the emission reduction. There is a major advantage of the
carbon tax over the cap-and trade programme and the hybrid version as well because it allows
the certainty of the carbon price and has a less cost of administration. It also has a substantial
source of revenue (Rozenberg et al., 2013).
There might be other alternatives that can be implemented in order to diminish the
emissions of carbon in the industry. Apart from the carbon taxes and the cap and trade, the
emission of the carbon can be regulated by measuring the carbon footprint. Also reducing the
energy use of the buildings and the industries can be effective towards the amount of carbon
emission. The industry sector in Canada might certify buildings which will include the new

4REGULATORY APPROACHES TO CARBON EMISSIONS
technology of being energy efficient. There can be another method through which this
problem of greenhouse emission can be reduced. The employees of the organization can be
encouraged to use alternate options of public transport like carpooling, biking or
telecommuting which would not allow the energy to be wasted, saving it and also reduce the
emission of greenhouse gases. (Mildenberger et al., 2016). Even if there is a problem
regarding the undertaking of new energy efficient buildings, there can be eradication of
carbon footprints by the progress and the implementation of the alternative projects such as
afforestation, solar or wind energy.
From the above discussion it can be concluded that carbon trading and carbon tax are
the two chief governmental regulations that have been imposed on the individuals and the
industrial sector of Canada, in order to reduce the amount of carbon and greenhouse gas
emissions from the country. The imposition of the carbon tax is preferred over carbon trading
since it is a fixed monetary fee, whose payment is mandatory. On the other hand, the
allowances of carbon trading might undergo discrepancy. However there can be other
alternatives which the government of Canada can resort to, such as the introduction of new
energy efficient buildings and encouraging the people to use carpools.

5REGULATORY APPROACHES TO CARBON EMISSIONS
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6REGULATORY APPROACHES TO CARBON EMISSIONS
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