With the climate change talks coming up soon, I thought I'd post some information related to methods of dealing with carbon emissions. The two words that we often hear thrown around are cap-and-trade and carbon tax.

Although these sound very similar, they have some important differences. According to most analysts, cap and trade has a few loopholes in which heavy polluters may actually benefit from the scheme and actually cause increases in carbon emissions.

According to economist John Kay:
"When [a market] is created through political action, rather than emerging spontaneously, business will seek to influence its design for commercial advantage,"

This is why many are in favor of a carbon tax, which would hopefully provide a fairer and stricter method for limiting carbon emissions. In addition, funds collected from the tax can be used for additional carbon offset projects around the world.

New York mayor Michael Bloomberg states:
"A direct charge [carbon tax] would eliminate the uncertainty that companies would face in a cap-and-trade system. It would be easier to implement and enforce, it would prevent special interests from opening up loopholes,"

As mentioned in an early post, Sweden has already adopted a carbon tax since 1991. It has proven financially and environmentally successful and has helped spur innovation, particularly in the field of biomass energy production. In Europe, countries are moving towards carbon tax where as in the US, the discussion seems to still be focused on cap-and-trade.

For a quick (and funny) view on the drawbacks of cap-and-trade, check out the Story of Cap and Trade. For additional information between the two methods, check out this article (short) and this article (long). For information about trends in Europe on carbon tax check here.