We have come far in our efforts to reduce air pollution. Living in the present, most have taken for granted the environment we live in, and the resources to continue the multigenerational conservation endeavour. The world has never been so clean since the Industrial Revolution. Looking back, we see that there is no shortage of tragedies caused by disregard for the environment. The Great Smog of London, in 1952, is a particularly harrowing reminder. Due to various pollutants emitted from the burning of coal, the city was covered in toxic smog, resulting in the death of 12,000 people (1) and sickening 100,000 more. As another example, sulfur dioxide emissions led to a period of acid rain in the US during the 1980s, culminating in the Acid Rain Program as part of the 1990 Clean Air Act. Over time, and having experienced various inconveniences of pollution, people are gradually becoming more aware of its negative effects. To mitigate them, society has mostly accepted the Polluter Pays Principle, which argues that consumers must pay for the damage they cause. One method of doing this is the Emission Trading Market, which utilises the ‘cap-and-trade’ system.
Emission trading – which aims to reduce emissions, namely carbon and sulfur dioxide – relies on governmental permits issued to various firms. Each permit allows a firm to produce a certain quantity of emissions, and collectively, they represent the carbon limit of a country. The permits can be traded between firms based on individual demand. The government may choose to decrease the carbon limit at any time, which increases the price of each permit due to lowered supply. Hence, the cost of emissions increases. The advantage of such a system is that it provides incentives for firms to lower their emissions over time. Being involved in the market puts all the firms in a race to reduce more than the competitors: the fewer permits used, the more profit gained from selling these permits to others. Hence, the emission trading market guides every firm to reach decarbonisation.
Carbon taxes serve a related purpose in achieving decarbonisation. As the name suggests, this is a tax on any carbon emissions generated from goods and services in an economy, thus increasing the cost of using fossil fuels. This helps to highlight and tackle the hidden environmental damage caused by carbon emissions. Unlike emissions trading, carbon taxes can be placed at any stage along the production chain: power stations can be taxed on their fuel usage, and likewise for fossil fuel-driven transportation. As of recently, around 46 countries have implemented this policy in their decarbonisation schemes (2), 24 of which are located in Europe.
With this in mind, one might be encouraged to ask: Why has the world still not reached net zero yet? While both policy suggestions are theoretically sound, they rarely reach this ideal in practice: currently, only 20% of global emissions are taxed. The most significant issue is that the prices imposed by carbon taxes or permits issued by fiscal means may not provide enough incentive for firms to abide by it. To commit to the 2015 Paris Agreement, an estimated price range of $40-50 per metric ton would be required. Take Europe at present, for example, the carbon tax ranges from €1 per ton of carbon emissions in Ukraine to more than €100 in Sweden or Switzerland. Such disparities can only hinder decarbonisation. The flight of capital due to an extortionate rise in tax will render such efforts ineffectual. Also, in countries with low carbon tax or low permit prices, firms might be inclined to ignore regulation even at the cost of paying fines, since it justifies the profit gain from excess emissions. In addition, most countries lack the capability to enforce such policies, so companies may break the rules unnoticed.
That said, the flaws of these decarbonization policies should not demoralise our net-zero goals. Through joint global initiatives and international partnerships, we can enhance the benefits of these policies through worldwide implementation with a strong focus on industry emissions overseen by the governments. It is our collective efforts that will induce the greatest impact.
- Stone, R (2002). “Counting the Cost of London’s Killer Smog”. Science. 298 (5601): 2106–2107.
- World Bank Group (6 June 2019). State and Trends of Carbon Pricing 2019 (Report). hdl:10986/31755. p. 21
- The world urgently needs to expand its use of carbon prices (no date) The Economist. Available at: https://www.economist.com/briefing/2020/05/23/the-world-urgently-needs-to-expand-its-use-of-carbon-prices?
- Mengden, A. (2024) Carbon taxes in Europe, Tax Foundation. Available at: https://taxfoundation.org/data/all/eu/carbon-taxes-europe-2024/
