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The merits of carbon cap and trade

With the 2015 United Nations Climate Change Conference in Paris approaching quickly, there is a noticeable increase in public discussions about ways to reduce global CO2 emissions. Climate-related announcements made by Chinese President Xi Jinping during his recent visit to the United States have also focused greater attention on this topic. Even though increasing numbers of policy makers and an overwhelming percentage of scientists are convinced of the urgency of responding to climate change, it is surprising that public concern about the problem remains relatively low. In fact, a recent Pew Research poll found that even though 61 percent of Americans believe climate change is a real phenomenon, they ranked mitigation measures near the bottom of priorities for President Obama and Congress.

Some of the reasons for this discrepancy stem from the fact that climate change is a relatively slow process, with fewer tangible near-term effects when compared with pressing economic and homeland security concerns. A further public perception issue arises from the fact that measures to curb CO2 emissions are often seen as having an unfavorable impact on the economy.

In order to allay these concerns it is important that we first acknowledge the incredible extent to which our society in general is dependent on CO2-emitting fossil fuels. While zero-carbon — and even novel negative-carbon — green technologies are currently being developed, experts in the field do not anticipate that these energy sources will become cost-effective and abundant alternatives to fossil fuels within the next several decades.

Climate mitigation techniques such as geologic carbon capture and sequestration (CCS) — which can address the problem of climate change while still allowing the nearly undiminished use of fossil fuels until alternative energies are developed — are of growing interest to researchers. However, the technical and economic efficacy of CCS has also been questioned by some.

In addition to being expensive, long-range computer simulation studies indicate that CO2 captured and sequestered in saline aquifers has some probability of leaking back into the atmosphere in the future. And though leakage times are measured in hundreds — or even thousands — of years, it is an important consideration for policymakers and the public at large. As a member of a generation forced to cope with the environmental problems our predecessors have left for us, I am opposed to passing on problems to later generations that we found difficult to solve during our time. And thus, I believe that, though promising, CCS would have to be set aside as an answer; we must look elsewhere and to other mechanisms to mitigate climate change.

Given this perspective I believe that our attention is best directed at investigating policy measures that could incentivize businesses to decrease emissions. The two main economic policies that have received consideration are the imposition of a carbon tax and the introduction of a “carbon cap and trade” scheme.

Cap-and-trade has, in particular, been in the news recently because the Chinese President Xi Jinping announced, during his recent visit to the United States, that his nation would be implementing it, starting in 2017, to mitigate climate change. Though this news was welcomed by activists and policymakers, it came as a surprise to many, since Chinese economic and political policies are typically seen as being less progressive by American standards. With this bold policy move China now appears to be taking the leadership role in limiting carbon emissions in an economically sensible way.

I believe China’s recent move is a landmark event in climate mitigation history. American policymakers have long argued that it was pointless for the U.S. to act unilaterally on climate change without China also agreeing to take similar action. This excuse is no longer viable, and the next move on the chessboard is undoubtedly America’s to make. And America must make a move — and make it fast, because the percentage of global emissions contributed by the U.S., falling at around 15 percent, is second only to China’s which falls at around 29 percent.

However, it is important to note that cap-and-trade is a somewhat dated idea, and this policy innovation had in fact pioneered in the United States — and it was used successfully in the 1980s by American companies to limit sulfur-dioxide emissions that were responsible for acid rain. This past experience indicates that cap-and-trade policies can spur technological innovations as companies try to profit by reducing their emissions and selling their emissions credits to others whose emissions control efforts are lagging.

Some critics of cap-and-trade argue that it might lead to instability in energy prices, and indicate a preference for a carbon tax. Other proponents of the carbon tax suggest that cap-and-trade is overly complicated, and that companies can manipulate it and defeat its real purpose. However, I find carbon tax problematic because companies will pass on the financial burden of the added tax to consumers. The beauty of the cap-and-trade scheme is that it appeals to market mechanisms that will encourage competition and innovation.

So, after a careful consideration of the options at-hand, it appears that carbon cap-and-trade seems to be the best economic policy to regulate carbon dioxide emissions and mitigate climate change. China made a smart move on Sept. 25th. The question is: Will the U.S.? Who will lead the agenda at the upcoming UN Climate Change Conference in Paris?

Contact Ramya Balasingam at ramyab ‘at’ stanford.edu.

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