Abstract
BackgroundTwo alternative procedures currently exist for efficient carbon dioxide (CO2) emissions control: carbon emission trading and proportional carbon tax. This article explores which of the two is more desirable and efficacious.ResultsCompared to emission trading, the equilibrium under a universal proportional carbon tax achieves Pareto superior allocation. In addition, the price of a unit of CO2 emissions is much higher in the case of a universal proportional carbon tax than for bilateral emissions trading.ConclusionsThis paper reveals the superiority of a universal proportional carbon tax over the emissions trading in terms of the efficiency of CO2 emissions control. However, deciding and abiding by a universal tax rate is likely to require great political will. In this sense, viewed in the current context, such a tax scheme is visionary. Gradualism is unavoidable. It is far more desirable to expand the network of the upcoming trilateral carbon trading network steadily rather than leaving the global economy to the laissez-faire situation.
Highlights
Two alternative procedures currently exist for efficient carbon dioxide (CO2) emissions control: carbon emission trading and proportional carbon tax
We find that the decisions of economic agents emitting carbon dioxide (CO2) are isolated from direct and indirect damages due to such emissions, owing to the genuine property of their external diseconomy of the emission; at the very least, the market cannot remain sustainable without expectations of strengthened regulation in the future
Ψ represents the disutility from the CO2 emission via the production process of a consumption good
Summary
Two alternative procedures currently exist for efficient carbon dioxide (CO2) emissions control: carbon emission trading and proportional carbon tax. This article explores which of the two is more desirable and efficacious. They cannot be sufficiently sustained without government assistance and intervention. According to Lovins and Cohen (2011), p.227, “In the wake of the world’s failure to agree on a new trading legislation in Copenhagen and the U.S Senate failure to pass binding legislation, the price of carbon fell drastically. In the United States it fell almost to nothing. In Europe, the price of carbon fell from a high of €25 to €8 a ton. By October 2010, prices had started to rebound, hitting €12. Subsequent measures have only strengthened the price per ton”
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