Debate -DCs and LDCs..Global Warming

There is debate over the contributions of developed (DCs) versus that of less developed countries (LDCs). While DCs argue that LDCs should reduce their emissions, LDCs counter that since DCs had first emitted pollutions, and that a certain amount of pollution is needed for economic growth. Limiting big polluters in some countries but not others will diminish theimpacts of caps as firms may relocate existing and new production of CO2-emitting industries to countries with no limits. This is known as carbon leakage, and may lead to tradeanarchy. Carbon Taxes An alternative to the cap and trade system is the levying of carbon taxes. Carbon taxes serve two functions. First, theypunish bad behaviour by making polluters bear the full costs of their actions. Second, they reward environmentally friendly practices, thus encouraging a shift toward such practices. Elementary economics tells us that any negative externalities should be taxed to align private incentives with social costs and benefits and to serve as a disincentive to future bad behaviour. Thus, if the government imposed a tax on carbon-based products, firms would have an incentive to shift their production away from pollution and the emission of carbon (which are negative externalities) should be taxed. Furthermore, firms and consumers would have an incentive to shift their production and consumption toward environmentally-friendly practices. Advocates ofcarbon taxes include economists such as Greg Mankiw, Gary Becker and Alan Greenspan. They have argued that carbon taxes raise large revenues which governments can use to reduce other unpopular and more distorting taxes, or finance spending programs.
However, carbon taxes have never been used internationally, that they are politically difficult to establish because consumers and businesses dislike taxes, and that they do not establish an actual firm limit on emissions. Cap and Trade versus Carbon Taxes While both cap and trade and carbon taxes aim to reduce harmful emissions, a carbon tax avoids the process of allocating allowances to countries internationally and among companies domestically. Carbon markets are susceptible to corruption, especially in LDCs, where legal frameworks are not well established. Even in DCs, politics may get in the way of good policy as big businesses and special interest groups may lobby to obtain a larger carbon credit. A carbon tax, on the other hand, offers less opportunity for corruption because it does not create artificial scarcities and monopolies.
On the other hand, cap and trade allows governments to control the quantity of emissions produced, thus providing certainty. Some havesuggested auctioning carbon permits. This solves the problem of how to allocate carbon credits as firms bid for the price they are willing to pay to pollute, thus reflecting the price that firms place on pollution. However, this is a relatively new idea, and has not been widely implemented yet. For now, it is unclear which is a better system, though there is a slight preference among economists for the use of carbon taxes. Nevertheless, regardless of which policy is implemented, the details of the policy, such as its costs and benefits, valuation of costs, social and political considerations and thenature of the industry, must be carefully examined.

However, carbon taxes have never been used internationally, that they are politically difficult to establish because consumers and businesses dislike taxes, and that they do not establish an actual firm limit on emissions. Cap and Trade versus Carbon Taxes While both cap and trade and carbon taxes aim to reduce harmful emissions, a carbon tax avoids the process of allocating allowances to countries internationally and among companies domestically. Carbon markets are susceptible to corruption, especially in LDCs, where legal frameworks are not well established. Even in DCs, politics may get in the way of good policy as big businesses and special interest groups may lobby to obtain a larger carbon credit. A carbon tax, on the other hand, offers less opportunity for corruption because it does not create artificial scarcities and monopolies.
On the other hand, cap and trade allows governments to control the quantity of emissions produced, thus providing certainty. Some havesuggested auctioning carbon permits. This solves the problem of how to allocate carbon credits as firms bid for the price they are willing to pay to pollute, thus reflecting the price that firms place on pollution. However, this is a relatively new idea, and has not been widely implemented yet. For now, it is unclear which is a better system, though there is a slight preference among economists for the use of carbon taxes. Nevertheless, regardless of which policy is implemented, the details of the policy, such as its costs and benefits, valuation of costs, social and political considerations and thenature of the industry, must be carefully examined.