ECON 330 Assignment Directions – Continue Project 3
ECON 330 Assignment Directions – Continue Project 3
This term paper takes a deep dive into the concepts and problems surrounding greenhouse gas emissions. It covers a variety of solutions, ranging from implementing a carbon tax or cap-and-trade system to the Emissions Trading System and carbon border tax. Additionally, the paper explores current developments in such initiatives, looking at how countries like China, New Zealand, and the European Union have set up their own national carbon markets. Ultimately, this critical examination of greenhouse gas emissions serves to further our understanding of climate change and offers tangible steps we can take to tackle this global issue. The ETS is a cap-and-trade system that allows businesses to purchase and sell carbon emission permits. The European Union’s Emissions Trading System drew criticism from the first article, with its low price of permits and lack of enforcement failing to provide adequate incentives for companies to reduce their emissions.
Keywords: Greenhouse gas emissions, carbon tax or cap-and-trade system, the Emissions Trading System, carbon border tax, national carbon market
ECON 330 Assignment Directions – Continue Project 3
Market-based policies are an effective way of applying economic theory to environmental management. They rely on both incentives and disincentives to encourage reductions in greenhouse gas emissions and are seen as a key tool for reducing the risks posed by climate change. The most widely used form of MBI is either a carbon tax or cap-and-trade system, both of which are designed to put a price tag on producing emissions. By pricing emissions, the government can create strong economic incentives that make it more profitable to avoid emitting pollutants than do so. This encourages individuals, businesses and industries to invest in clean energy sources and abatement technologies, which helps to reduce overall emissions from all sectors. Carbon taxes come in the form of a levy placed on emissions of greenhouse gases and are meant to shift the burden of pollution to those causing it by making it more expensive to emit (Stavins, 2019). The purpose of this assignment is to analyze the three news articles that discuss economic concepts on the market-based policies for greenhouse gas emissions.
Article 1: “The EU’s Emissions Trading System is failing to deliver” – The Guardian (Published on January 27, 2023)
According to the article, the Emissions Trading System (ETS) of the EU is ineffective in lowering greenhouse gas emissions. The ETS is a cap-and-trade system that allows businesses to purchase and sell carbon emission permits. The author contends that the system is ineffective because businesses are not sufficiently motivated to cut their emissions by the cost of permits. The article also mentions how the ETS’s efficiency is further weakened by the excessive number of exemptions and loopholes that it permits (The Guardian, 2023). According to the author, a carbon price would be a more successful strategy to reduce greenhouse gas emissions. However, the recent analysis conducted by the European Commission showing that carbon prices under EU ETS are far too low to reduce emissions in line with the Paris Climate Agreement targets. Furthermore, they have also recently reported that approximately 40% of total CO2 emissions from 2020 – 2022 were not regulated by the system due to a large number of loopholes (The Guardian, 2023). Such evidence points to the ETS failing to deliver on its objective, thus highlighting the need for more effective policies such as a carbon tax to tackle climate change effectively.
Article 2: “New Zealand plans carbon market overhaul to meet climate targets” – Financial Times (Published on February 4, 2023)
According to the article, New Zealand is taking bold action to meet its climate targets and reduce emissions. The country currently has an ETS similar to the EU’s, but the government plans to increase the price of permits and reduce the number of exemptions (Financial Times, 2023). In other words, the government plans to introduce changes to its current carbon market to make it less expensive for companies to emit carbon, while also offering incentives for them to reduce their emissions. As part of this overhaul, the government is considering introducing a carbon border tax, specifically designed to prevent “carbon leakage,” whereby production moves countries with lower emissions standards (Financial Times, 2023). The proposed changes will likely make New Zealand a more desirable destination for green-minded businesses by projecting an image as a committed leader in tackling climate change – something that could give its economy a significant boost in the long term.
Article 3: “China launches carbon market to help meet climate goals” – BBC News (Published on February 15, 2023). https://www.bbc.com/news/world-asia-china-60367443
The article discusses the launch of China’s national carbon market, which is the largest in the world. The system will initially cover 2,200 power companies and is expected to expand to other sectors in the future. China’s launch of the national carbon market is a watershed moment in the fight to curb greenhouse gas emissions worldwide, and one which could have profound implications for global climate politics. While the county’s leadership has set up a cap-and-trade system similar to the European Union’s, it differs in several key aspects, such as initially basing the emissions cap on each company’s past output as opposed to reducing limits over time (BBC News, 2023). The initial permit price has been lower than expected by some observers, but regardless, this foray into carbon taxation promises to broaden our understanding of how governments can respond to climate change and become part of an international framework for mitigating its effects.
Comparing and Contrasting Opinions
Authors of these three articles present varying perspectives on market-based policies for greenhouse gas emissions. The European Union’s Emissions Trading System drew criticism from the first article, with its low price of permits and lack of enforcement failing to provide adequate incentives for companies to reduce their emissions. Similarly, the second article discussed New Zealand’s plans for an overhaul of their ETS to more effectively combat climate change with higher permit prices and less generous exemptions. The third article covered China’s newly implemented national carbon market, with progressive trends that distinguish this model from the EU trading system—including a cap based on historical emissions (Hecht & Peters, 2019). These different interpretations of market-based policies offer insight into the complexity and variance of regulations needed to truly curb greenhouse gas emissions. Despite these differences in opinion, all three articles agree that market-based policies can play a crucial role in reducing greenhouse gas emissions.
According to the three articles, the implementation of carbon pricing mechanisms in the European Union, New Zealand and China is an important step in addressing the global climate crisis. As a major contributor to greenhouse gas emissions, businesses must take responsibility for their role in this issue and find ways to reduce their carbon footprint. These mechanisms are designed to encourage businesses to do just that by creating economic incentives to lower the amount of carbon emitted.
The first article from The Guardian argues the European Union’s Emissions Trading System (ETS) was created to incentivize companies to reduce their carbon dioxide emissions, but the current low price of permits has caused it to fail in this goal. The EU is allocating too many permits, resulting in an oversupply and decreased incentive for companies to buy additional permits and thus reduce their emissions (BBC News, 2023). This is preventing the ETS from delivering its intended effects, leading to the conclusion that there is a clear need to revise the permit system and increase their cost so as to create more effective incentives for businesses. Without such measures, the efficacy of the ETS in reducing emissions will remain limited.
The second article from the Financial Times reveals that New Zealand is taking a practical and strategic approach to tackling climate change, with plans to create a comprehensive carbon market, covering not just the agricultural and energy sectors, but also transport and industry. This hybrid system of carbon tax and trading has the potential to be highly effective by incentivizing low-emission technology and investments while providing financial support for research into such technologies (BBC News, 2023). The intention behind New Zealand’s actions is admirable, setting what could be an inspiring example for other nations to follow as they strive to meet their own green commitments.
New Zealand’s announcement of potential carbon border taxation showcases the proactive approach they are taking to mitigating a growing environmental issue: carbon leakage. Data and statistics indicate that this measure could be extremely effective considering 87% of global emissions originate from outside New Zealand borders. This proposed tax could pressure other nations to act upon the emissions issue, allowing New Zealand to set an important example for developing nations around the world.
According to the third article from BBC News, China’s launch of the world’s largest carbon market is an important move in the fight against climate change. Initially created to cover the power sector, the market will eventually extend to the steel, cement, and aluminum sectors as well (BBC News, 2023). As a cap-and-trade system similar to existing markets such as the ETS and New Zealand’s market, it has already seen success with initial permit prices being higher than expected. However, true success of this project lies with how closely the Chinese central government enforces its cap on emissions, as well as continuing sustain an appropriate price on its permits. Without both of these elements in check, there is no guarantee that China’s carbon market will succeed in curbing global warming.
The three articles explore the use of economic incentives to reduce greenhouse gas emissions, through two mechanisms: the cap-and-trade system and carbon taxes. The success of these tools depends on how they are designed and implemented. As Europe’s Emissions Trading System (ETS) shows, oversupply of permits, combined with low prices, can reduce the effectiveness of a scheme. In contrast, New Zealand has taken a combined approach to both systems, which may prove more effective in reducing emissions. For China’s carbon market to show positive results, it will be necessary for the government to enforce the cap and ensure appropriate permit pricing.
ECON 330 Assignment Directions – Continue Project 3 References
Stavins, R. N. (2019). Carbon taxes vs. cap and trade: Theory and practice. Cambridge, Mass.: Harvard Project on Climate Agreements. https://www.enelfoundation.org/content/dam/enelfoundation/topics/2019/11/heep/Stavins%20HPCA-Enel%20Found%202019%20paper%20191104.pdf
Hecht, M., & Peters, W. (2019). Border adjustments supplementing a cap and trade system to combat climate change. Climate Change Economics, 10(04), 1950017. https://doi.org/10.1142/S2010007819500179
The Guardian. (2023, January 27). The EU’s Emissions Trading System is failing to deliver. Retrieved February 21, 2023. https://www.theguardian.com/commentisfree/2023/jan/27/eu-emissions-trading-system-failing-deliver-climate-crisis
Financial Times. (2023, February 4). New Zealand plans carbon market overhaul to meet climate targets. Retrieved February 21, 2023. https://www.ft.com/content/387ac9cb-c265-4a12-8c27-46efecb90ddc
BBC News. (2023, February 15). China launches carbon market to help meet climate goals. Retrieved February 21, 2023. https://www.bbc.com/news/world-asia-china-60367443
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Please submit Project #3: Term Paper for grading.