carbon taxes vs. tradable permits

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8 Terms

1
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define Carbon Taxes

A tax on firms per unit of pollutants emitted.

2
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define tradable permits

Allowances for firms to emit a certain amount of pollution, which can be traded.

3
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Advantages of Carbon Taxes

  • Price stability

  • Government revenue generation

  • Easier to implement than tradable permits 

4
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Disadvantage of Carbon tax

  • Does not stop pollution - relies on price incentives

5
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Advantages of Tradable Permits

  • Flexibility for firms

  • Certainty in pollution production

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Disadvantage of Tradable Permits

  • Price fluctuation

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Disadvantages for both

  • Decreased FDI

  • Increased unemployment

  • Regressive nature

  • Hard to measure how much a firm has polluted - costs to that

  • Decreased export competitiveness

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Advantages for both

  • Firms invest more into R&D - creates jobs in the short run.

  • Higher prices at first, but the technology becomes cheaper and more efficient.

  • + externalities of production - other firms can use the innovation.