According to EPA, total US greenhouse gas emission in 2010 from various economic sectors is as follow.
It looks like the majority of the emission comes from consumers, who are direct users of electric transportation and commercial and residential sectors. Industry and Electricity consists of more than 50% of the emission from U.S.
“A carbon tax would appear to take direct aim at consumers, while a cap-and-trade system targets industry. But there is, in fact, less difference than one might suspect because the cap-and-trade costs or savings would be passed on to consumers. Both systems are designed to change behavior by raising the prices of goods and services with a high carbon content and lowering the prices of products with low emissions.
As both schemes work through prices, theory would suggest that for every potential rate of carbon tax (say, 5 per cent or 10 per cent) there is, in fact, a corresponding cap that would produce an identical result” (Toronto Star 2008).
Due to the different nature of industries, cap-and-trade will produce winners and losers in the economic sector. The greenest companies in the top 15 lists, according to the Newsweek, are financial services, information technology and telecommunication. And the majority of those from the opposite end are material production, utility, food and beverage companies and energy companies.
Not surprisingly, electricity generation by burning fossil fuel accounted for 34% of total GHG emission. The industries that will be hit severely will be electric utility companies, car industry, and manufacturing. On the other hand, information technology and financial services, being on the opposite end of emission spectrum will greatly benefit. Hence, the problem is how to determine which sector should get more permits since giving the same number of allowance to an information technology company and to a power plant will not be fair. And what if a power plant is favored? Wouldn’t that be giving advantage to the heavy emitter and undermine the purpose of emission control?
In addition, there are also several problems with cap-and-trade and carbon tax systems, that might give away loopholes to giant corporations to get around the control.
The “trade” component does not reduce any emissions. It simply allows companies to choose between cutting their own emissions and buying cheaper “carbon credits,” which are supposed to represent reductions elsewhere.
The “cap” has too many holes and sometimes caps nothing. The cap is only as tight as the least stringent part of the whole system. This is because credits are sold by those with a surplus, and the cheapest way to produce a surplus is to be given too many credits in the first place (“hot air” credits as a result of caps being set too high). The aim of trading is to find the cheapest solution for polluting industry, and it is consistently cheaper to buy “hot air” credits than to actually reduce emissions.
On the other hand, businesses that are regulated by carbon tax will pass those taxes onto the final consumers by increasing the price of products, which will eventually cause inflation. Instead of taxing the big carbon emitters, providing subsidies to those which produces more energy efficient consumer products to reward and support the progress. (Reyes 2010)
“Cap-and-trade or a carbon tax?” Toronto Star [Toronto, Ontario] 1 June 2008: A14. Global Issues In Context. Web. 6 Nov. 2012.
Reyes, Oscar. “Carbon trading: a brief introduction.” Synthesis/Regeneration Wntr 2010: 13+. Global Issues In Context. Web. 6 Nov. 2012.