What is the difference between a carbon tax and an emissions cap and trade plan?
In a cap and trade system governments fix maximum emission levels – in other words, set a cap – for different industries. When industries go over their set emissions level, they can buy credits at market price from other companies that have not yet reached their cap. This way, companies have financial incentives to reduce emissions. A similar system worked well to reduce acid rain 20 years ago. It is generally accepted that a combination of a cap and trade system and a tax on carbon is the market-based way to shift the economy to a low carbon diet. Greenpeace feels that both are necessary. The tax on its own, without hard caps on emissions and ensuing trade mechanisms, guarantees nothing. Deep and verifiable emission decreases are key.
