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The difference between a carbon tax & cap and trade models

The carbon and cap trade model are both ways used in reducing greenhouse gas emissions.
Although both models may be used in achieving the same goal of reducing greenhouse gas but,
they exhibit differences (listed in table 1) in their individual operating systems.
Table 1: Difference between carbon tax and cap trade model
Carbon tax
With a carbon tax system there will be less
fluctuations in costs
Benefit from the carbon tax is 5 times higher
than benefit from the Cap and trade model
Long term target can be achieved with a small
amount compared to the cap model.
With the carbon tax, companies pay for whatever
amount of carbon they emit.

Every company pay for what they emit. It cannot be

exchanged within companies

There is no requirement for monitoring emissions

which makes it easy to implement. Also, the carbon
tax can build on infrastructure for existing taxes.

With the carbon tax, there is certainty about the price

of emission but little certainty concerning the amount
of emission reductions.

Cap trade
This system is a very effective in reducing carbon
emission from companies and individuals

With the cap and trade system, companies also pays

for the amount of pollution they produce but have
limits. The amount of pollution allowed is limited.
When a company exceed their allowance, they are
penalized. They limit amount of carbon emission
allowed is measured in billions of tons of carbon
dioxide per year.
The carbon emission allowance can be exchanged
within companies. If a company does not reach the
limited amount, they can sell their credit to other
companies or ban.
There is also no requirement for monitoring carbon
emission but there will be a necessity for a new
infrastructure to keep track of the allowance. Its
more complex and requires more time.
One environmental advantage that the Cap and trade
system has over the carbon tax is that there is
certainty in the amount of emissions reductions but
little certainty about the price of emission.

Which of the two options above will the Province of Ontario move forward with
The choice of picking either the Carbon tax or the Cape trade system in reducing gas

emission in the Province of Ontario depends on which operating system best suits the economic

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and environmental demands of the province. Hence, before choosing the system to implement, it
is important to establish how it is going to be effective both economically and environmentally.
Everyone from individuals, household should be part of the solution reducing the carbon
emission.
Since 2008, the province of Ontario has been thinking about the carbon tax system
when they agreed with British Columbia, California and Quebec on strategies that will charge
companies that emit carbon. The province intends to balance the economic growth and the
reduction of greenhouse gas emissions. There is no decisions made up yet on which system the
province of Ontario is going to choose but, according to Mrs. Wynne It will be real. It will
reflect the needs of both the people and the businesses in this province. It will focus on the
balance between economic growth and the need to address our very real climate change
problem.
The province is more likely to move towards the British Columbia system which is the
carbon tax system. With this system, the low income earners will be favored financially because
they usually emit a very small amount of carbon compared to wealthier families who emits larger
amounts but, with more ability to pay or make change to reduce their carbon footprint. Its
important to note that the carbon tax model is only going to work in Ontario if the province is
ready to back out of current regulations governing the energys sector.
3

RECOMMANDATIONS on how the company on can prepare for any potential

price on carbon regulatory requirements

The company has to prepare whatever carbon price system the Ontario government will put in
place. The goal is to reduce emission while sustaining or making the business grow. Long term
investment need to be put in place by the company to avoid loses.
-

The company can invest in non-polluting energy such as solar and wind power.
It is more profitable to invest the money in other form of energy than buying credits from
other companies and make their business grow.
The company will have to review their policies and implement the new carbon price in
their policies.
To plan better, the company have to evaluate and manage the risk of using a carbon price
that will help in making better investment for the future.
The system need to be stabilized and the long term investment need to be protected
Improve the emission control

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Explore other carbon price system in other to efficiently reduce the cost of emission.

References
Congressional Budget Office. Policy Options for Reducing CO2 Emissions. (2008). Retrieved
from http://www.cbo.gov/sites/default/files/02-12-carbon.pdf
Environmental Defense Funds (n.d.). How cap and trade works. Retrieved from
http://www.edf.org/climate/how-cap-and-trade-works
Morrow A. (2015, January 14). Ontario to move forwards with carbon-pricing plan this spring.
The globe and mail. Retrieved from http://www.theglobeandmail.com/news/politics/ontario-tounveil-carbon-pricing-plan-this-spring/article22446114/
Suzuki D. (n.d.). Carbon tax or cap-and-trade?. Retrieved from
http://www.davidsuzuki.org/issues/climate-change/science/climate-solutions/carbon-tax-or-capand-trade/