Types Of Policy Options For Co2 Emissions Mitigation Accounting Essay

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Policy options for CO2 emissions mitigation can be considered for domestic applications of individual nations and in a wider context international instruments that can be employed jointly by groups of nations. Stringent climate change policies will only be adopted by individual nations if they feel that positive net benefits such as international transfers will be forthcoming [1]. Adoptions of international policies by individual nations are vital as individual nations will be the one implementing and controlling the respective CO2 emissions. Therefore, both domestic and international policy instruments are important are important part of any successful mitigation plan.

Types of policy options

Policy options for CO2 emissions mitigation for domestic and international application can be broadly categorized as command-and-control instruments or market-based instruments (including voluntary instruments) [2]. Traditionally, command-and-control instruments have been the preferred choice by governments all over the world in addressing a variety of environmental problems. It is possible to set standards and regulations to control the activities of firm in order to mitigate excess CO2 emissions. In recent years however, market-based instruments have garner much attention as an effective policy option. It has the ability to alter price signals to influence emitters behavior[3]. For CO2 emission, the two categories of proposed instruments are charges, fees and taxes or tradable rights [2].

Command-and-control instruments achieve control by enforcing on uniform standards for firms either in the form of technology based or performance based regulatory standards. Performance standard is the more common approach, setting a maximum limit on the emission allowable for polluting activities but leaving the means of achieving those levels up to the firms. Technology-based standards specify the method and sometimes even up to the equipment itself allowable for the process. The use of command-and-control instruments has been well proven through the years. However this approach has its advantages and disadvantages.

Being a conventional tried and proven instrument for environmental policy deployment [4] is the main advantage of the approach. Till date, command-and-control instruments are still prominent in current and proposed policy measures to address climate change [2]. Standards are also the more widely understood form of environmental policy which is more pragmatic and in a sense more socially acceptable instrument [5]. Finally, the political cost of command-and-control instruments are also lower when compared to market-based instruments as setting standards does not incur direct budgetary implications [5]. On the downside, command-and-control instruments once set will only encourage polluters to conform to the standard. Standards would not provide dynamic incentives for the development incentives for the development, adoption and diffusion of environmentally and economically superior control technologies [6, 7]. Policy makers may also face difficulties in setting the optimum standard and penalty. This may lead to penalties for violating standards being too low and enforcements tends to be weak [5].

Carbon Tax

Market-based instruments have great potential cost of meeting greenhouse gas emissions targets [8]. Carbon tax is not a direct proxy for CO2 emission tax as the former is tax based on the fossil fuel consumption while the latter is based on the emission rate. However as the emission of CO2 still relates back to the amount of fossil fuel usage, carbon tax can still be an instrument to control the CO2 emissions. There are various points in the economy where a carbon tax can be applied to control emissions from the extraction stage right down to end user consumption stage. Power generation through the combustion of fossil fuel is one of the major points of CO2 emissions; however there will be much more less monitoring points and therefore a lower implementation cost if carbon tax was to be collected from the extraction points or import points.

The impact of the carbon tax on the economy will depend on the carbon tax revenue distribution. Some researchers feel that if f a revenue neutral approach is adopted, where revenue recycling is implemented the cost of carbon tax on the economy will be low [9-12]. Others on the other hand believe that carbon tax will still cause intensify distortions associated with remaining taxes on investment or labor [13, 14]. Key questions that should be address in setting a carbon tax include the tax rate, the optimal tax base and addressing international trade concerns [14]. Implementing carbon tax for domestic CO2 mitigation policy should be comparable to implementing any domestic tax. However, it will be much more complicated to implement an international carbon tax. Till date there is still no international agency setup or mandated that is able to impose and enforce an international carbon tax on member nations. Instead of having a central agency to oversee the carbon tax as in the domestic case, an alternative would be for an international agreement for all the countries to levy the same domestic carbon taxes. The agreement could cover on the tax rate, the distribution of the revenues, exemptions other related matters and should be reviewed periodically. However, such arrangement will undermine the principles of distributional equity for climate change mitigation as all nations are set the same tax rate. A possible solution will be an agreement on the percentage of sharing of international tax revenues and how much should go from rich to poor countries[15].

Tradable Permits

Tradable permits is the another attractive market-based instruments to be considered for implementing CO2 mitigation policies. Firms will receive permits to emit; the permits then can be traded between firms depending on the demand of each firms for emissions[16-18]. Firms will want to purchase permits if their abatement cost exceed the permit price and sell their permits if the opposite situation occurs therefore minimizing the cost of reducing emissions for all [2]. Permits could be distributed to firms either by "grandfathering" (giving companies permits based on historical output or emissions) or auctioning process, with the latter being a more preferred choice [19]. There are also a possibility to combine both methods of permit distribution[20]. As with tax revenue, tradable permits revenues could be use to offset pre-existing distortionary taxes. This can be achieved if auctioning of permit is preferred over grandfathering of permits where rent will be channeled to the government. Once the emission target has been set and the respective emissions permits have been allocated, the government can step back and allow the market to work with government involvement limited to monitoring compliance and enforcement of actions on non compliance. The government main role will be in ensuring that the polluters' emissions are covered by the permit and the mechanism is respected by all.

Tradable permit can also be applied in the international context, in the form of an international tradable permit scheme. All countries can be allocated emission permits which provide them the right to emit a given volume of emissions over a time period. The permit can later be utilize for its own consumption or traded with other nations on an international market. The distribution of permits between nations will likely depend on factors such as gross development product (GDP), population, land area and energy source available [21-23]. If the transaction cost can be kept relatively low, trading of permit will enable mitigation to be at a cost effective scenario for all parties. This is one of the major advantages of this instrument. Countries allocated additional permits or have the ability and opportunity to mitigate further GHG emissions will be able to sell their allocated permit for revenue. Poor and developing countries can also be allocated additional permits than required to enable them to sell these permits back to developed nations. In this way, the question of distribution of equity burden of climate change can be address. Funds can be channeled to the poorest nation in need of support for climate change mitigation and adaptation. For tradable permits in the international context, the question on who or which organization who will be able to coordinate, monitor and enforce the scheme will still require much consideration. The implementation of a global scheme will be more complicated as compared to tradable permit within a national government or economic region.

Joint Implementation (JI) and Clean Development Mechanism (CDM)

Joint Implementation (JI) and Clean Development Mechanism (CDM) are provided for in the Kyoto Protocol. JI as defined in Article 6 of the Kyoto Protocol allows for allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target [24]. This will ensure that the emission reduction is achieved at the lowest cost possible as projects will be selected and implemented at locations with a lower abatement cost. In principle JI is a type of permit trading as the economic gains are similar to that of permit trading except that under JI, efforts are bound to a specific project.

Article 12 of the Kyoto Protocol describes the CDM which states that "The purpose of the clean development mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments under Article 3" [25]. CDM can be considered as a JI implementation between developed (Annex B) and developing countries. It is considered as a solution towards channeling funds and technology for climate change mitigation to developing nations and at the same time provides an alternative to Annex B nations in methods to achieve their emissions reduction targets.