Changes Towards a Cleaner World

"Our physical health, our social happiness, and our economic well-being will be sustained only by all of us working in partnership as thoughtful, effective stewards of our natural resources."

President Ronald Reagan

In the last decades humanity has seen a world in constant and unending environmental change. The overuse of nonrenewable resources has not only left a polluted world but also has left our future generations short of resources and paying for our negligent choices. On the other hand, as an aid to our environment, we have new technological advances that, if used well, can be our solution.  But, with all of those reachable resources, why do we not use them correctly? Why America is still dependable of nonrenewable resources? Why is America still dependent on other countries to fulfill our energy needs? And why does America still have high levels of pollution?

The Problem of What's the Optimal Level

A major issue is how the optimal level of pollution is measured. Determining the natural capacity that the environment has to assimilate pollution seems a complicated task. Economist and environmentalist have disagreed in this issue for a long time. On one side economists think that pollution cannot be reduced to zero because it creates inefficiency. In other words, if the cost of reducing greenhouse gases (GHG) emissions exceeds the benefits to society, it is not worth the expense. Society pollutes because the final product is beneficial to society itself, so the optimal level cannot be zero. On the other hand, environmentalists, aware of the levels of pollution, claim that not only a cleaner environment is needed for the public health, but also a less use of nonrenewable resources is optimal for this and future generations. Society has the capacity to use cleaner methods and the right to live in an environment free of pollution. Is it really not efficient to reduce the pollution to zero? Either to one way or another the matter here is that many of the natural resources are running out and the country has reached a high level of pollution.

Few disagree that when carbon dioxide levels are too high, human health is compromised. Besides the natural formation of carbon dioxide, the burning of fossil fuels – whether it is by the use of our cars, production or the use of electricity – overproduce carbon dioxide and other GHG. Either on the producers’ side or by the consumers’ side, the full cost of such negative externality is not covered.

Considering the lack of policies, a social cost has been created. As an exhaustive effort to internalize the externalities, environmentalists and economists have come up with solutions that could motivate the reduction -- or the end -- of carbon emissions by using other energy sources. These alternatives to reduce GHG emissions are known as Cap and Trade and Carbon tax. But, how will private companies pay for the social good created? Should producers have to pay for externalities or should consumers have to pay for it because they are the direct beneficiaries of the resource? Should America opt for energy saving alternatives? What is at stake here is that America should move forward to an energy policy that concern to all of us.

Liberal and conservative groups have adapted Cap-and-Trade or tax on carbon regulations as part of the solution.

Cap and Trade

Cap and Trade is a regulation that forces companies, industries, plants, and other emitters that produce a certain level of pollution to reduce such emissions. This is accomplished by first establishing a “cap” in a specific sector, where companies are allowed to pollute a certain level of greenhouse gases. That level slowly reduces over time. Those that exceed are fined. The other part of the deal is emitting allowances or permits that match the emission level. These permits are sold on an annual basis by public agencies. Companies that can cut its pollution easily and at lower costs can sell their allowances to those companies that passed the limit. This creates a “trade” where companies not only increase their revenue, but are also motivated to reduce the emissions in order to increase revenues. Thus, it can be said that the regulation can help the economy and the environment at the same time.

As an example of reducing GHG emissions, California was the first state in the country that has a long-term approach to a climate change with the Assembly Bill 32 (AB32). The goal of this program is to reduce the level of GHG emissions by 2020. The rules of this regulation were applied to the major emitters of gas, over 25,000 metric tones, and then continued to the rest of the emitters. This bill will help to maintain a clean environment, use natural resources better and improve the economy. 

Carbon Tax

The other alternative is a carbon tax. Carbon tax is a fee per ton of carbon emissions. Owners of emissions sources would pay taxes equivalent to the fee multiplied by total emission. This means a per-unit fee on goods and services proportional to the amount of carbon emitted in the production process. The tax creates a marginal cost to companies, some of which will be passed to consumers. The extra cost is a price signal that leads to lower demand. This response encourages companies to reduce emissions and to switch to cleaner energy.

These two alternatives -- carbon tax and Cap-and-Trade -- create a monetary burden to producers and consumers of GHG emissions, which incentivizes them to lower such emissions and find sources to a cleaner energy. By reducing oil use and finding new ways to use energy, the economy of the country could be strengthened.

However, another issue is where the money collected from levied taxes should go. This has two sides of the coin; where one side wants the money to go back to the tax payers, and the other side prefers the money goes back to programs that incentivize the creation of clean energy. Either way, the cost of administrating the tax is expensive, reducing the efficiency of the final objective. Keeping track of the emissions and the money taxed on the sector result a difficult task. Emitters tend to evade taxes because of the high and heavy tax levied on the final product. These inefficiencies tend to distort the environment problem.

As has been noted, greenhouse emissions are obviously a complex issue that requires all hands on it to make it better. Due to the fact that it affects health, natural resources and the economy of our nation, policies are definitely needed in today’s society. The pollution and devastation has been created and is in our nature already, what we do for a better future is our duty in order to compensate the damage created.

See also: Pricing Carbon: Tax vs. Cap and Trade