### Understanding Carbon Taxes and Emissions Trading Schemes#### What is a Carbon Tax?A Carbon Tax is a fee imposed on the burning of carbon-based fuels (such as coal, oil, and gas). The primary aim of a Carbon Tax is to reduce greenhouse gas emissions by increasing the cost of using fossil fuels. By doing so, it encourages businesses and individuals to reduce their carbon footprint and invest in cleaner alternatives. The idea is that higher costs for carbon-intensive activities lead to reductions in emissions as both producers and consumers seek out more cost-effective, sustainable choices.#### What is an Emissions Trading Scheme?An Emissions Trading Scheme (ETS), sometimes referred to as a cap-and-trade system, is a market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. Under an ETS, a government or a regulatory body sets a cap on the total amount of greenhouse gases that can be emitted by all participating entities. These entities then receive or purchase emission allowances which can be traded with one another as needed. Entities that can reduce their emissions at a lower cost can sell their extra allowances to others who face higher costs in making these reductions. This creates a financial incentive for the reduction of emissions where it is most economical to do so, ensuring that the overall environmental goal is met in the most cost-effective manner.### ConclusionBoth Carbon Taxes and Emissions Trading Schemes aim to reduce carbon emissions effectively but do so through different mechanisms: direct pricing of emissions for Carbon Taxes, and a controlled, market-based system for Emissions Trading Schemes.

Carbon Tax A carbon tax is an environmental tax imposed by the government to ensure that a company…

Answered: Explain clearly what a Carbon Tax is.…

Business

Economics

Explain clearly what a Carbon Tax is. Then explain clearly what an Emissions Trading scheme is.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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