<a href="http://www.gmagazine.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

Carbon trading or carbon tax?

coal fired power plant

Credit: Arnold Paul / Wikimedia

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One of the big issues now is whether we need a carbon tax. The question is whether a carbon tax will be more effective than carbon trading.

Let me start from the outset and declare my hand here.

I believe a carbon tax is better because it's more efficient, transparent and simple. Cap-and-trade schemes, on the other hand, can allow governments to pay off politically powerful polluters, such as the coal industry, by giving them permits to pollute.

Cap-and-trade schemes can also create opportunities for cheating. They can lead to unpredictable fluctuations in energy prices and critics argue that they do nothing to offset high power costs for consumers. Carbon taxes, on the other hand, can be structured to deliver clean-energy incentives.

This is what fascinated me when I read that Victoria’s governor David de Kretser has called on the Rudd Government to consider introducing a carbon tax which would increase the price of goods produced by high energy emitting power stations.

It would also hit the price of petrol. The Victorian Governor has also attacked the Rudd Government’s proposed emissions trading scheme, saying it would "favour polluting industries and dissuade community actions to move to more renewable energy sources".

New York Times columnist Thomas Friedman concurs. No one likes paying higher taxes but this one, he says, would be worth it.

"Americans will be willing to pay a tax for their children to be less threatened, breathe cleaner air and live in a more sustainable world with a stronger America," Friedman says. "They are much less likely to support a firm in London trading offsets from an electric bill in Boston with a derivatives firm in New York in order to help fund an aluminium smelter in Beijing, which is what cap-and-trade is all about. People won’t support what they can’t explain."

The counter view, expressed here is that cap-and-trade schemes will actually reduce emissions, that they are less susceptible to political interference and they are better for investors.

In any case, a carbon tax will result in price hikes for goods such as petrol and transport.

What do you think? Do you believe carbon trading is the way to solve the climate crisis? Or do we need something more radical, like a carbon tax? Would you be willing to pay more for goods produced from high emitting industries?