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Introduction:
Climate change is primarily driven by the increased concentration of greenhouse gases (GHGs)
in the Earth's atmosphere. These gases, such as carbon dioxide (CO2), methane (CH4), and
nitrous oxide (N2O), trap heat from the sun, leading to a phenomenon known as the
greenhouse effect. Human activities, including the burning of fossil fuels, deforestation, and
industrial processes, have significantly contributed to the rise in GHG emissions since the
Industrial Revolution.
The consequences of climate change are diverse and include rising global temperatures, sea-
level rise, extreme weather events, shifts in precipitation patterns, and ecosystem disruptions.
Scientists employ various methods, such as climate modeling and analysis of historical data, to
study and predict these changes.
Three strategies have been identified: (1) climate engineering, (2) adaptation, and (3) mitigation
a) carbon dioxide removal: direct air capture or ocean fertilization, seek to reduce the
greenhouse gases
b) solar-radiation management: injecting stratospheric aerosols, aim to cool the planet by
reflecting a fraction of the incoming sunlight away from Earth.
Addressing climate change requires a comprehensive strategy that involves both adaptation
and mitigation measures. The primary focus of mitigation is to reduce GHG emissions to limit
the extent of future climate change. Mitigation attempts to moderate the temperature rise by
using strategies designed to reduce emissions or increase the planet’s natural capacity to
absorb greenhouse gases. Here are some key strategies:
Transition to Renewable Energy: Shifting from fossil fuels to renewable sources such as solar,
wind, and hydropower can significantly reduce CO2 emissions associated with electricity
generation and transportation.
While not directly related to climate change, it is worth mentioning the efforts to reduce ozone-
depleting substances (ODS) such as chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons
(HCFCs). These substances not only harm the ozone layer but also possess potent greenhouse
warming potential. The adoption of the Montreal Protocol in 1987 has successfully phased out
many ODS, contributing to the protection of both the ozone layer and the climate.
Negotiations
cost-effective strategies were a priority. Emissions trading and a carbon tax are both forms of
carbon pricing, but they operate rather differently. In emissions trading the government sets the
magnitude of allowed emissions and allows the market to determine the price, while the carbon
tax sets the price on emissions and allows the market to determine the amount of emissions.
Cost Savings. Two types of studies have conventionally been used to assess cost savings: ex ante
analyses, based on computer simulations, and ex post analyses, which examine actual
implementation experience. A substantial majority, though not all, of the large number of ex ante
analyses have found that a change from more traditional regulatory measures based upon source-
specific limits to more cost-effective market-based measures such as emissions trading or
pollution taxes could potentially achieve either similar reductions at a much lower cost or much
larger reductions at a similar cost. The evidence also finds, as the theory would lead us to expect,
that these two instruments typically produce more emissions reduction per unit expenditure than
other types of polices such as renewable resource subsidies or mandates. while both taxes and
emissions trading are fully cost-effective in principle, they fall somewhat short of that in
practice.
Emissions Reductions. In one study that attempts to control for other factors that could a22
percent between 1990 and 2015. In the Northeastern U.S., the Regional Greenhouse Gas
Initiative (RGGI) emissions from all covered sources were reduced 37 percent during the 2008–
2015 period despite a rather weak cap. While the recession played some role, the main sources of
the RGGI reductions were
(1) substituting to renewable resources and lower carbon fossil fuels such as natural gas, aided
considerably by lower natural gas prices, and
(2) energy efficiency investments, that reduced the amount of energy used per unit of output.
Three Carbon Pricing Program Design Issues: Using the Revenue, Offsets, and Price
Volatility
Using the Revenue. Revenues could be used to reduce the financial burden of the policy on low-
income populations, to boost the economy, to increase the magnitude of the emissions
reductions, to aid workers displaced by the policy, and even to increase the likelihood that a
carbon-pricing policy might be enacted in the first place. While in some cases particular revenue
choices can simultaneously achieve multiple objectives, others require political trade-offs.
Various strategies have been designed to achieve one or more of these objectives. They
include:
(1) giving the revenue back to households in the form of a lump-sum rebate on a per
capita basis,
(2) lowering various taxes such as the corporate tax, the income tax, the capital
(4) helping workers who are displaced by the shift to a lower-carbon energy supply.
Some of these revenue strategies can be designed to be “revenue-neutral.” By definition, no
revenue from a revenue neutral policy can be used to fund new or expanded programs. Revenue
neutrality can be achieved either by rebating all the carbon-pricing revenues to households, or by
lowering other tax rates such that the lost revenue to the government from the lower rates is
equal to the revenue derived from carbon pricing. Revenue neutrality is also seen as helpful in
building support for the policy among those who do not want to see an increase in the size of
government.
Finally, carbon-pricing policies induce a shift away from high-carbon fuels and toward low- or
zero-carbon fuels. While employment in the low- or zero-carbon fuel industries would rise,
employment in the high-carbon fuel industries would fall. Studies indicate that the coal industry
would be the hardest hit. Some of the revenue could be targeted specially at helping these
displaced coal workers make the transition. This strategy could be useful in reducing the burden
on this specific population and potentially in reducing the opposition to carbon pricing in coal-
mining regions. Fortunately, economic studies have also found that it is not necessary to make an
either–or decision among these revenue using choices. Because substantial revenue is commonly
involved in carbon pricing programs, some strategies can be used simultaneously, thereby
covering several bases at once.
Offsets. While both emissions trading and a carbon tax cover emission from sources sprd, offsets
extend the reach of a program by providing economic incentives for reducing sources that are not
covered by the tax or cap.
● Finally, because offset credits separate the source of financing from the source providing the
reduction, it secures some reductions (in developing countries, for example) that for affordability
reasons might not be secured otherwise.
The challenge for establishing an effective offset program is assuring that the primary
requirements (namely, that the reductions be quantifiable, enforceable, and additional) are all
met. One obstacle is the tradeoff between the administrative costs associated with verifying the
validity of offsets and the degree of offset validity. Assuring valid offsets is not cheap.
The Role of Price Volatility. A tax system fixes prices, and unless some administrative
intervention changes those fixed prices, price volatility is not an issue. This is not the case with
emissions trading in either principle or practice. Experience not only validates the concern that
emissions trading can be plagued by volatile prices, but also demonstrates that price volatility is
not a rare event. In the EU ETS case, two early price declines were attributable to inadequate
public knowledge of actual emissions relative to the cap and a failure to permit allowances in the
first phase to be banked for use in the second phase. A subsequent dramatic price decline in 2012
stemmed from an over allocation of permits, recession, and long-term uncertainty about the
stability of climate policy. This experience demonstrates that the design of an emissions trading
system is vulnerable to unstable prices in two rather fundamental ways:
● First, because the cap establishes a fixed supply of allowances, demand shifts (due, for
example, to other regulatory actions, recessions, or shifts in prices of lower carbon fuels) can
trigger large changes in allowance prices (since supply cannot respond).
● Second, the demand for allowances is derived from satisfying compliance obligations.
Changing circumstances (due either to external factors or simply greater than anticipated success
in lowering carbon emissions) can create a surplus of allowances. This surplus may cause the
price to drop precipitously since lower prices do not stimulate any increase in the quantity
demanded. Both the RGGI and the EU ETS markets have experienced precisely this kind of
price-dropping surplus.
Summary:
Climate change is a complex issue resulting from the accumulation of greenhouse gases in the
atmosphere due to human activities. Understanding the science behind climate change is
crucial for formulating effective strategies to mitigate its impacts. Transitioning to renewable
energy, improving energy efficiency, adopting sustainable land-use practices, and implementing
carbon pricing mechanisms are key strategies for reducing GHG emissions. Additionally, efforts
to phase out ozone-depleting substances have contributed to both the protection of the ozone
layer and climate change mitigation. By implementing these strategies, we can work towards a
more sustainable and resilient future.