Carbon pricing has been the go-to solution for some environmentalists and economists alike since the change of climate has been the foremost current environmental and social challenge. The approach of carbon pricing relies on neoclassical economists that suggest that high prices on the amount of carbon produced will reduce its emission; hence, individuals will either reduce carbon dioxide production or use other sources of energy. Notably, the assertion of carbon pricing has raised strong debates whether it will solve the issue of climate change or not. While the proponents of carbon pricing argue that it is the ideal way to addressing climate change, the author of this paper sides with opponent and claims that carbon pricing will not only negatively affect the economy due to limited production but will also prevent innovation that is the better way of solving climate change.
The first argument against carbon pricing is that it will negatively affect the economy of most countries that rely on industrial production. In its simple term, carbon pricing means an increase of federal revenues and support reduction of carbon dioxide emissions by creating a carbon tax either directly on carbon or raising the prices of carbon dioxide sources such as coal, natural gas, and fossil fuel. According to Leiserowitz (2006), by raising the cost of fuel, the cost of products and services such as transportation and electricity will increase. This will reduce the consumption of materials since the demand will be too low due to the high prices of the commodities. Particularly, without bookkeeping how the incomes from a carbon tax would be , such taxes would have a negative effect on the economy. The higher price it causes lessens the buying power of individuals earnings, efficiently dropping their actual (inflation-adjusted) wages. Lesser real wages would have the net effect of reducing the amount that individual worked, thus declining the overall number of labor. Additionally, an investment would also reduce, further decreasing the economys overall output.
Additionally, the high taxes imposed on carbon production will limit the production of most companies globally hence utilization of the natural resources will be reduced which will affect the economy. For example, a company that makes $1million in a year without carbon restriction can reduce this amount by half when the carbon tax policy is applied. This means that a substantive quantity of money is due to carbon pricing policy. Leiserowitz (2006) says that the money lost as a result of the carbon tax is enough to be used in innovation to solve global warming.
Furthermore, the price tax policies aim at only raising the price of fossil fuel and do not reduce the amount of renewable energy or other alternatives. Thus, government and companies that can still afford the high prices of fossil will still continue to emit carbon dioxide since they are a situation to afford fossil fuel and coal. On the other hand, those countries that will not afford the high prices of the fossil fuel will not grow economically since they cannot afford the cost of fuel. As a result, it will only widen the gap between the developing and the developed countries. It is in this vein that Nordhaus (2002) says that it is of great importance and idea that the world start looks at effective rescue plan of the climate other than just relying on the approaches that cannot offer solutions.
Notably, Research has shown that placing taxes on carbon industries will not solve the climate change experienced in the U.S. It is that this policy can only reduce the effect by only 7% which is not the solution. To implement this policy in every country will be very difficult because not all the countries are willing to adopt the policy. Therefore, implementing this policy on one country like U.S will be like doing nothing because the rest of the countries will be still using their greenhouses as usual. By simple calculation, if U.S adopts the policy and it can only manage to reduce 7% of the total problem then it will be like no solution has been found because the rest 93% will still be on air being produced by other countries such as Japan, India and China. This policy only aims at increasing the technological advancement in which energy products will be affordable to a large population and reducing the environmental pollution. But claiming that the policy can be used to reduce the climate change problem affecting the environment in most developed and a developing country is not an actual solution (Tol 2009).
Arguably, instead of focusing on the carbon tax, all countries should focus on innovation and technology to solve the climate change that will make fossil fuel technology less harmful and cleaner to the people. First, the companies should focus on the treatment of the affluence that they produce. This will reduce the amount of greenhouses gases that are into the atmosphere. According to the study carried by Nordhaus (2002), some companies in Japan have resorted to the technological treatment of greenhouses gases in order to escape the carbon tax. Additionally, innovation should be utilized to convert the byproduct of the companies to more resourceful substances. For example, carbon dioxide can be used in food and beverage companies, oil and gas, pulp and paper, and water and waste water treatment. Notably, During the Copenhagen conference on climate change and global warming, various people suggested opinions to help solve the problem but not all countries have adopted the strategy. Most of the world climate economists suggested that instead of placing a tax on the carbon producing industries will not solve the problem but rather it will only make life more difficult. They however argued that countries should invest more in the research development to come up with ways of producing non-carbon emitting energy (Nordhaus 1991). This approach will ensure that the governments expenditure on climate change is used appropriately for an effective purpose.
Following the discussion furthered herein, it suffices that carbon pricing will not solve the climate change that has become the concern of most countries in the world. Particularly, instead of solving the problem at hand, carbon pricing will negatively affect the economy in that it will limit the production of most companies. Additionally, carbon pricing policy only increase the prices of fossil fuel and does not reduce the prices of the alternative sources of energy, therefore, those can afford the cost of coal will still emit carbon into the atmosphere. It is in this vein that opponents of the carbon tax argue that states should use of innovation and technology as the first line of solving the issue of climate change.
Leiserowitz, A. (2006). Climate change risk perception and policy preferences: The role of affect, imagery, and values. Climatic change, 77(1-2), 45-72.
Nordhaus, W. D. (2002). Modeling induced innovation in climate-change policy.Technological change and the environment, 9, 259-290.
Nordhaus, W. D., & Yang, Z. (1996). A regional dynamic general-equilibrium model of alternative climate-change strategies. The American Economic Review, 741-765.
Nordhaus, W. D. (1993). Optimal greenhouse-gas reductions and tax policy in the" DICE" model. The American Economic Review, 313-317.
Nordhaus, W. D. (1991). The cost of slowing climate change: a survey. The Energy Journal, 37-65.
Tol, R. S. (2009). The economic effects of climate change. The Journal of Economic Perspectives, 29-51.
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