Emissions Trading Ethics

Abstract

Although emissions trading is embraced as a means to curb carbon emissions and to incentivize the use of renewable energy, it is also heavily contested on ethical grounds. We will assess the main fundamental objections and possible counterarguments. Although we sympathize with some of these arguments, we argue that they are unpersuasive when an emissions trading system is well designed: emissions should be accounted ‘upstream,’ on the production rather than the consumer level. Moreover, allowances should be auctioned, and regulatory measures (such as an escalating tax on additional allowances) could instigate the right kind of behavior towards the environment.

Acknowledgments

We would like to thank two anonymous reviewers for their helpful suggestions, and Julian Cockbain for his language editing.

Notes

1. Emissions trading systems are being, or have been deployed in the EU, Australia, California, Alberta, RGGI (ten US states and two Canadian provinces), New Zealand, Mexico, China, Brazil, South Korea, Kazakhstan, UK, Norway, Switzerland, Tokyo, Japan, and India (EDF, 2013).

2. In this regard, we should note that, in our view, people’s freedom to develop their own attitudes is important. While sound and robust climate policies are critical to ensure that the basis for human civilization is not undermined, it is not necessary or desirable, and moreover, probably not even feasible, to force the ‘right kind of attitude’ upon others. We thank an anonymous reviewer for drawing our attention to this point.

3. For reasons of feasibility it is suggested that a flat rate tax on additional emission entitlements would be more suitable than an escalating tax. Furthermore, lower incomes and poorer countries might be reliant on fossil fuel intensive technology while the wealthy might be able to afford the energy efficient technology. Hence, through our proposition, the worst-off might be burdened while the best-off do not need to make a ‘considerable’ sacrifice. This argument clearly is forceful, yet, a flat rate tax might still not dissuade the best-off to lower fuel consumption, while through revenue recycling, the tax’ regressive effect on low-income households can be addressed. The matter of feasibility of the flat rate tax is of course a matter of empirical research. We will not pursue the matter here further and suffice by advocating a tax on additional emission entitlements and advocate a revenue recycle to avoid the tax’s regressive effect.

4. It is argued that while upstream accounting might avoid the civic responsibility argument against ET, under such an accounting system costs will most likely get passed along the supply chain, ultimately making consumers bear the burden. However, as mentioned, when revenues are ‘recycled’ they could cancel out the possible regressive effect of a carbon price on households while not permitting citizens to make no reasonable sacrifice.

5. In stating that, under an upstream account of ET, responsibility to reduce emissions is not directly ascribed to citizens, we are not arguing that responsibility for emissions should be ascribed only to the production side (instead of the consumer side). Individual agents, in our view, certainly do have responsibilities to reduce emissions. However, the evaluation of other necessary policy measures in this regard, falls out the scope of this paper.