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Problem and Policy Description
Environmental degradation is one of the major problems that threaten the existence of humanity. Environmental degradation has led to the increase in greenhouse gases (GHG). Global warming is one of the effects of environmental degradation. This has necessitated countries to devise strategies on how to reduce their GHG emission.
The Kyoto Protocol is one of the boldest moves by countries around the world to reduce pollution. Kyoto protocol strives to reduce the carbon footprint of various countries. However, the United States, which is the largest air pollutant in the world, did not ratify the Kyoto Protocol.
Politicians claimed that the Kyoto protocol would have a negative effect on the American economy. However, this has not prevented various states in the U.S. from passing laws that strive to reduce their carbon footprint. California is one of the states that have a carbon tax.
California uses an auction to determine the carbon tax. The results of the first action put the price of carbon dioxide emission at $10.09 per metric ton. The first auction led to the sale of 23.1 million allowances that covered 2013 emissions. In addition, the bids in the auction were three times the number allowances available for sale.
Due to the sale of all allowances covering 2013, polluters do not have to submit their emission allowances for 2013 (Barringer para 3). However, traders and regulators expected the market to be undersubscribed. Therefore, there was a sigh of relief when there was oversubscription of the allowances by a factor of 3 to 1.
Analysts expect that in future the carbon tax would increase to between $11 and $12 per metric ton of carbon dioxide. In addition, analysts expect the market of the allowances become more robust in the future. This would be due to the entry of financial firms.
Compliance entities accounted for approximately 97% of all the allowances sold in California’s first auction. Compliance entities refer to companies that need to account for their GHG emissions (Barringer para 8).
Relationship between Policy and Carbon Footprint
California requires businesses to pay $10.09 for each metric ton of carbon dioxide that they emit. By setting a price on the amount of carbon dioxide that businesses emit, California expects businesses to reduce their overdependence on fossil fuels.
This would reduce the carbon footprint of businesses. The carbon tax would also motivate businesses to reduce their carbon emissions by investing in pollution control equipment or install energy efficient equipment. In addition, the carbon tax may motivate businesses to undertake alterations in their production processes to reduce the carbon emissions.
However, it is vital for California to ensure that the carbon tax would encourage businesses to reduce their carbon emissions. A very low carbon tax would not have the desired effect. On the other hand, a very high carbon tax would reduce the profitability of businesses.
This may create an unfavorable business environment. High carbon taxes would increase the operational costs of companies in California. Companies may pass the increased costs of production to their customers by increasing the price of their products.
This may reduce the competitiveness of products from companies in California. Therefore, it is vital for relevant agencies to ensure that the carbon tax is higher than the cost of installing pollution control equipment (Daianu and Vranceanu 207). This would encourage companies to invest in pollution control equipment.
Eightfold Path Analysis
Pollution is one of the major problems that the world faces. Therefore, it is vital for relevant parties to take measures that would help in reducing the carbon footprint. California’s carbon tax strives to reduce carbon emissions of businesses. Pollution is one of the major problems that California faces.
According to evidence from the American Lung Association, California is home to some of the most polluted cities. These cities include Los Angeles and Fresno. Therefore, it is vital for California to pass legislation that would help in reducing pollution in these cities.
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Carbon tax is one of the major methods that California may use to reduce pollution. California may also use carbon credit to reduce pollution. California decided to use carbon tax to reduce carbon emissions by businesses. It uses the free market to set the rate of carbon tax.
California facilitated the sale of emission allowances to determine the rate of carbon tax. Carbon tax would help in reducing the carbon emission of businesses. In addition, it is evident that the federal government may in future put in place legislation that ensures that all businesses pay carbon tax. Therefore, California may alter it legislation to conform to the legislation.
However, the policy does not have a defined project outcome. California does not have a specific target for reduction of emission of carbon dioxide due to the policy. Carbon tax would reduce the profitability of businesses.
However, it would ensure that businesses reduce the environmental impact of their activities. This would help in protecting the environment. Environmental protection would ensure the long-term stability of the businesses. Therefore, the benefits of carbon tax outweigh its costs.
Barringer, Felicity. “California’s CO2 now has a price, but a low one.” The New York Times, 2012. Web.
Dăianu, Daniel and Radu Vranceanu. Ethical boundaries of capitalism, Hants: Ashgate Publishing Ltd, 2005. Print.