Environmental Engineering Reference
In-Depth Information
to maintain market pricing for energy but to provide financial aid targeted
at the poor.
Taxes
Unlike the countries mentioned above, most nations do not subsidize
petroleum products, but tax them instead. This tax is at a high rate in
Europe and a low rate in the US - which entirely explains the better fuel
efficiency, emission reduction and even profit record of Europe's car
industry compared to Detroit's.
But Europe has not succeeded in extending taxation to other forms and
uses of energy. In the early 1990s, the European Commission proposed
an EU tax on all uses of energy - not just energy used as fuel but also
energy used in industrial processes and power generation - in a way that
would penalize carbon-intensive energy sources. In other words, a carbon
tax. But it was blocked by EU governments, even though some Nordic
members of the EU have gone on to adopt a carbon tax at a national level.
Cap-and-trade schemes
This is the alternative favoured by most politicians in Europe and a few
in the US, chiefly because it is a less overt, and therefore more politically
palatable, form of energy taxation. The EU has had its Emission Trading
System (ETS) since 2005. The idea of a cap-and-trade system is that the
government sets a cap or ceiling on the overall volume of GHG emissions
it will permit, and within this overall cap, the government allocates (either
administratively or by auction) emission permits to industrial sectors or
companies, which are then free to trade these permits on the ETS market
if they want to. This gives flexibility for companies to expand (which
means they must buy extra permits), diversify or reduce (which means
they have excess permits to sell) their carbon emissions.
In essence, an emission-trading scheme establishes a fixed emission-
reduction volume and lets the market determine its cost, while a carbon
tax fixes the cost of carbon reduction and lets the market determine its
volume. Carbon-trading schemes are probably easier to negotiate than
carbon taxes, and applied internationally they can give tradeable credits
and incentives to find sustainable energy resources to developing coun-
tries that would never accept a carbon tax on themselves. But during the
2008-09 recession, reduced demand for emission permits on the ETS
lowered the permit price to a level at which it was probably useless as a
