Tax or Cap & Trade

Again an article in english, and again, global warming... In the past few years most of the industrialized countries accord in the Kyoto Protocol to reduce their greenhouse emissions. Counting the emissions (in terms of CO2e) in 1990, their goal is to reduce it in about 5% to 10% percent.

The protocol became mandatory to these countries from 2008 thru 2012, and the scheme imposes a penalty of 40 to 120 euros per ton of CO2e (carbon dioxide equivalent). The problem to these countries, especially the samll europeans ones, is that they probably can't reach their goal in time. The Kyoto Protocol creates 3 schemes to achive the GHG emissions reductions:

- Joint Inplementation (JI): this scheme allows to joint efforts between two countries in order to reduce GHG despite the actual site of the project.
- Clean Development Mechanism (CDM): is a scheme to all countries that are not forced to reduce GHG emissions, but sign the compromise to reduce them (like Mexico) and the amount of the mitigation can be sell by the other countries. Sometimes, these countries finance the projects expecting the reductions as the payment for their investment.
- Emissions Trading (ET): this scheme tries to regulate the trading of the profits in emissions reductions to the ones that cant reach their needs in terms of reduction.

Each scheme produce units of ton of CO2 emissions. When these emissions are mitigated, and verified that the reductions is real, the UNFCCC (organism that regulate the Kyoto Protocol accords) emits a certificate for each ton of CO2e reduced (CER).

When we say that the Kyoto Protocol imposes penalties, it works like the carbon tax. The carbon tax system to reduce GHG emissions have its benefits in a particula country: it forces the companies to reduce their emissions as it would be mandatory, also affects the consumer behaviors if there is a carbon tax and affects also all kind of industries that produce emissions, the effect will be inmediatly and allows the governments to creates ecological programs or incentive of clean technologies with these taxes.

The problem to this system is that it has to be a baseline from where each company can measure their reductions. Is will be measure form ther past emissiones and that incentive the companies to emit as much as possible before these baselines will be set. In the case of Mexico, it will be the action of the industires to continue their emissions levels.

In the other hand, the possibility to generates profits from the mitigation will work as an incentive to the industries. When we can measure the amount of reductions, we can obtain credits for that, and the sell them to have a profit. In the Kyoto Protocol, these credits are the CERs. The baseline to measure the reductions and the trade rules of the credits comercialization is calles "cap & trade".

The problem for the governments to establish a cap & trade system is that the result wouldn't be inmmediatly, and the could not include all the sectors that emits GHG, such as the particular transport (particular cars or taxis per example) and the change of behaviors will take longer and is not guarantee to achive a particulary goal.

The Kyoto Protocol can't impose a carbon tax system to each country, but make a penalties per country and let them to imposes the carbo tax if the will, but it regulate a "cap & trade" system for each scheme. The cap & trade are regulated by the offer and the demand of CERs, and for the CDM, the amount of each CER is lower that the a amout of a JI CER. In every case, the top level for CER can't be upper than the price of the penalties.

In the particular case, each country has to determinate to incentive the emissions reductions by finance of invest in the cap & trade system, contemplated by the UNFCCC (CDM or JI), or to impose a carbon tax to reach their goals.

I think that for Mexico, it can work as a combine systems to reduce the GHG emissions in two periods, first with a cap & trade system in say... 3 years, and then a tax carbon that affects certins levels of GHG emissions and make excent the ones thats are under thata levels without emits credits for the reductions reache under these levels.



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