Comparative Study of Carbon Tax and Carbon Credit
Introduction
There has been a tremendous change in the Earth's atmosphere since mid 20th Century. The average temperature of Earth has increased during the last century. The Intergovernmental Panel on Climate Change concludes that increasing industrial activities and human activities have given rise to increasing Greenhouse Gas Emissions which has increased the surface temperature of the Earth. This basic conclusion has been endorsed by almost all the scientific societies and academies of science all over the world including every national academies of science of the major industrialized countries.
Climate model projections point out that global surface temperature will probably rise a further more during the twenty first century. The warming is expected to continue even beyond 2100 because of the large heat capacity of the oceans and the long life time of Carbon di oxide in the atmosphere.
Global temperature rise will have catastrophic effects which include sea level rise, expansion of subtropical deserts, continuing retreat of glaciers, permafrost. Other likely effects include increase in the intensity of extreme weather, species extinctions and reduce agricultural yields.
Political and public debates continue regarding the climate change but the actions to take to substantially curb the rising presence of Greenhouse Gases have not yet been finalized. Governments are working out on various mechanisms to curb the rising Carbon dioxide levels and have come out with two models which can be used effectively to reduce and slow down the process of Carbon Dioxide emissions. One mechanism is taxing Carbon and the other is capping the emission of Carbon.
Carbon Credit
Carbon credits is a mechanism adopted by national and international governments to mitigate the effects of Green House Gases(GHGs). One Carbon Credit is equal to one ton of Carbon. Capped Greenhouse Gases are traded in the market to regulate the emissions from the sources. The idea is to allow market mechanisms to drive industrial and commercial processes in the direction of low Greenhouse Gases(GHGs). These mitigation projects generate credits, which can be traded in the international markets for monetary benefits.
There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon credits are bought from an investment fund or a carbon development company that has aggregated the credits from individual projects. The quality of the credits is based in on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. Voluntary units typically have less value than the units sold through the rigorously-validated Clean Development Mechanism].
Background
Fossil Fuels are the major source of Greenhouse Gas Emissions. Industries such as Power, Textile, Fertilizer use fossil fuels for their high volumes of operations. The major greenhouse gases emitted by these industries are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs), etc, all of which can increase the temperature of Earth's Atmosphere by trapping Infrared radiations from the Sun.
The increasing awareness about the environmental degradation gave rise to the concept called Carbon Credit. The Intergovernmental Panel on Climate Change(IPCC) has observed that:
Mechanism/ Policies that provide a price of carbon could create incentives for producers and consumers to significantly invest in low-GreenHouseGas products, technologies and processes. Such policies could include financial instruments, government funding and regulation,while noting that a market based trading system is one of the policy instruments that has been shown to be environmentally effective in the industrial sector, as long as there are reasonable levels of predictability over the initial allocation mechanism and price.
The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed through the subsequent Accords.
