Carbon Taxes with Reinvestment: A Global Solution to a Global Challenge

Abstract

There exists a general agreement in today’s world that the environment is fast degrading and it would be in universal interest to take steps to ameliorate the situation. Though global warming occurs in innumerable ways and greenhouse gas emission is a wide problem there is no consistent global approach to tackle climate change. Carbon taxation is a method intended to internalise the negative externalities that are currently, caused by polluters with no repercussions. But there exists no agreement that carbon tax is the means to be adopted in this pursuit. The two methods that are often mooted are carbon tax and cap and trade program. Each method has its own pros and cons. The cap-and-trade program involves the limitation of carbon emissions by regulated polluters and allocation of set emission allowances among them. Trading of these allowances determines the value of allowances and creates a market among polluters. If the regulated polluters exceed the set cap, they must purchase reduction credits from other targeted polluters who do not meet their assigned limits. It shall be argued herein that carbon taxes with reinvestment addresses the shortcomings of both the approaches and it has the potential to be a global solution to global warming.