The emission of carbon and other greenhouse gasses is one of the most pressing environmental threats today. In 2021 carbon dioxide emissions totaled 36.3 billion tons, the highest level recorded and a rise of 6% from the previous year. Data shows that these emissions have already raised global temperatures by 0.8 degrees Celsius. While this may not seem drastic, scientists predict that if temperatures increase by 2 degrees Celsius, the consequences of this warming trend will bring severe consequences including food shortages, heat waves, and intense storms. Further, it is also predicted that an increase of 1.5 degrees Celsius has already been ‘locked in’, making the situation even more dire.
Fortunately, there are strategies that can be taken to slow, and hopefully end, this trend of rising carbon emissions. For one: carbon pricing. Pricing attempts to capture the externalities, or the negative effects experienced due to carbon emissions that producers create. In doing this, governments shift some of the environmental burden to producers as they are the ones who must pay carbon prices.
There are two ways to implement the increased cost of carbon: carbon taxes and emissions trading systems (ETS).
When putting a carbon tax in place, legislative bodies are able to direct price on carbon, meaning they create a monetary estimate of all damage due to carbon emissions and attach that to the production of carbon. However, there is no limit on the amount of carbon firms can continue to produce after this carbon tax is enacted. Therefore, the only reduction in carbon emissions comes from the higher prices and thus greater economical constraints on producers. As of 2021, there were 27 countries that use carbon taxes, including Denmark. The tax in Denmark costs producers 1,125 Danish crowns ($164.21) per ton of carbon dioxide emitted. This tax has been very successful. It has reduced carbon emissions by 65% and has simultaneously improved production by 35%.
The second way to administer a price on carbon is through the emissions trading system, or a cap-and-trade system. Through this system, there is a limit placed on the total amount of carbon emitted and firms are given a specific amount of how much they can individually emit. The second aspect of this system is that companies are allowed to sell off amounts of emissions that they were allotted. This has been implemented in the United States through the Regional Greenhouse Gas Initiative (RGGI) which applies to 12 states (making up 25% of the population and ⅓ of U.S. GDP) including Connecticut, Massachusetts, and Rhode Island. This has also seen wild success as it has cut carbon pollution by over 50%, created health benefits valued at $5.7 billion, and has consumers $1 billion in energy bills.
These statistics prove the merit and significance of carbon pricing. They are both effective and economically beneficial. It is crucial that more legislation is passed to further these efforts and keep our environment as healthy as possible.
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