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The Cost of Carbon

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When factories belch smoke, everybody pays. Shouldn’t polluters be the ones to feel the sting instead? That’s the big idea behind carbon pricing: Add a levy so that emissions of greenhouse gases have a cost in line with their environmental damage. Using market forces should be the most efficient way to get companies to change their ways and to fight climate change. More countries are warming to the concept, but policy makers can’t agree on the best way to do it. Europe, parts of the U.S. and China use exchanges where companies buy and sell permits to pollute. There's vigorous debate about whether those markets work better than a simple carbon tax.

About half of the 195 nations that signed the 2015 Paris agreement to fight global warming expect to use some form of carbon pricing. China, the world's biggest polluter, will launch a nationwide carbon trading system this year for some of its dirtiest industries. Canada will set a national minimum price in 2018, and Singapore will introduce Southeast Asia's first carbon tax the year after. Worldwide, about 40 countries or jurisdictions have developed or plan to start emissions markets, generally systems known as cap-and-trade. About half that number have a tax, ranging from less than $1 a metric ton in Mexico to $131 in Sweden. Many countries — such as the U.K. and most Scandinavian nations — use permit trading alongside targeted taxes on dirty fuels like coal. U.S. President Donald Trump has opposed a tax, though some conservative political and business leaders, including the head of Exxon Mobil Corp., support the idea. They see it partly as a free-market replacement for environmental regulations that Trump is unwinding. Many of those rules were put in place by Trump's predecessor, Barack Obama, after he tried and failed to start a national cap-and-trade system.