Cap-and-trade system more effective than a carbon tax

I read with concern that a carbon tax on large emitters of greenhouse gases could work out to a 2.1 per cent to 4.3 per cent increase in current household electricity tariffs (“Carbon tax to be imposed from 2019 to cut greenhouse gas emissions”, Feb 21).

Firms such as power stations will not be affected by the carbon tax; they can simply pass these costs on to consumers with little incentive to reduce emissions. It can hurt the lower- and sandwiched-class families if the tax is amortised into the electricity tariffs. But households are just one sector. More critical is the commercial sector, because transportation and business costs could also go up, and these costs are eventually passed on to consumers and commuters as well.

Motorists are already paying a fuel tax, and if the carbon tax is implemented, petrol companies may need to increase petrol prices, setting off another supply chain reaction. And if we are not careful, companies may shift production to countries with no or a lower carbon tax.

Furthermore, the cost of administering the tax may be quite expensive, reducing its efficiency. And too high a tax would encourage firms to hide carbon emissions, while businesses with deep pockets can buy their way out of being responsible.

Our Government should continue to change the way of doing business, and promote more use of alternatives such as electric cars and solar power, as well as better waste recycling and biofuels.

Meanwhile, cap-and-trade is a better solution because it makes carbon a commodity, subject to market trends. With cap-and-trade there is a ceiling, and you pay the price for offsets. A business is also rewarded for reducing and emitting less than its allocation, because it could then sell those carbon credits.