Anthropogenic activities have led to massive influx of carbon dioxide in the atmosphere and this has

reached to levels which has been previously by our planet. This emitted carbon has definitely left a
mark on our planet by raising its temperature. It has now become certain that our planet cannot
continue to pay the price and heavy emittors must now start paying up for the carbon they are
releasing this is achieved through carbon pricing.

Carbon Tax and Emissions trading scheme both serve the same purpose of putting a price on the
carbon dioxide being emitted however they achieve this objective in different ways.

In Carbon Tax the governments charge a fixed tax on the carbon dioxide emitted by a company. This
is a very easy and simple way of placing a tax on the carbon emissions. Due to its simplicity the
companies can plan their investments and the expected returns way ahead. However on the
downside this technique does not put a cap on the amount of emissions therefore companies can
just emit and pay for it which ultimately may not lead to the ultimately lead to reduction in carbon
dioxide emissions.

On the other hand we have the emissions trading scheme the government sets a limit on the total
amount of carbon dioxide that can be emitted in a particular year and in line with this limit it issues
permit for emissions and distributes these permits among different players. These emissions permits
can again be traded among themselves and a marketplace is created for these permits. Although this
technique offers some uncertainty on the part of investors as it is very difficult to conclusively
predict the price of carbon over the lifetime of a project but it actually puts a limit on the carbon
emissions by a system on a whole.