Carbon Tax or Cap and Trade?

By Daniel Stouffer

It is a crucial question whether or not the cap and trade scheme be replaced by carbon taxation. The American Clean Energy and Security Act was inspired by the provisions within Waxman Markey and is pushing for a cap and trade program, but the opinion of the US taxpayers says otherwise. The recent survey, if deemed accurate and true, indicate that the straightforward carbon taxation is favored over the former and is deemed to be more responsive to climate change issues.

A cap and trade program calls for a central government to issue limits on the amount of carbon dioxide that can be emitted in any one calendar year. All entities that are responsible or contributory to that volume of carbon emissions must then enter into an auction-based program to purchase their individual rights to emit that carbon. Conventional wisdom says this will help to set a tradable price for carbon, which in the long term will drive down the amount of these greenhouse gases.

The question of whether or not the provisions of the American Clean Energy and Security Act, which are Waxman Markey-inspired, should be replaced by the perceived straightforward carbon taxation would now be born? In general, the US taxpaying population regards the carbon taxation to be more straightforward and practicable over the carbon trading scheme. Hart Research, on the instigation of the US Climate Task Force polled over 1000 registered voters, the result being that a straight forward carbon tax appears to be much preferable when addressing climate change issues.

In 2005, when the European Union's Emissions Trading Scheme was introduced, government officials and environmentalists in the 27 nation EU pushed its way forward. While the concept of "cap and trade" is not a new one, this was the first time that these concepts had been used to establish a major climate protection initiative. Those who are against the concept are concerned about volatility, uncertainty, insecurity, and oversupply when it comes to the argument on carbon trading as opposed to carbon taxation.

Much has changed in the political landscape in the United States in the past year or so. What was thought of as highly certain is now put into question, which proves that a week is a very long time for changes to erupt in politics. The cap and trade program envisaged by the House of Representatives is under increasing fire, and a carbon tax that directly targets the most polluting forms of energy is being suggested in its place. With such a highly contentious health care bill behind Congress, few expect that it will be possible to drive through major initiatives without at least some form of cross party support. As such, and with the Republican Party so against a cap and trade program, many expect efforts to be placed behind a direct carbon tax initiative instead.

If a stable price can be set on the cost of greenhouse gas emissions through a carbon-based direct tax, advocates want to see a corresponding reduction in the tax impact on ordinary citizens. It will be very crucial to neutralize the burden of taxation on energy costs, as it is expected that this will be the direct impact of such.

American businesses should expect to be affected by a carbon tax in the future and should realize that it is in their best interests to cut back on the amount of carbon emissions that they are responsible for. By being proactive in this fashion they could even carve out an advantage over their competitors, who may not be aware of the looming issues, or may be slow to act.

Every asset within a company's operation is responsible for a certain amount of carbon emissions, as by definition it uses energy to function. When the company is fully aware of the performance characteristics of the asset and is able to ensure that it is operating with total efficiency, then it may be sure that is closer to meeting the demands of an increasingly critical public, in terms of sustainability.

Article by Daniel Stouffer
Sustainability Resource Planning (SRP) platform delivers a broad range of enterprise solutions to over 40 global clients with a service network of over 7,500 consultants consisting of 65,000 application users. Verisae's software manages, and monetizes energy costs and carbon emissions while providing a rapid ROI. Learn more at

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