Question 1

What is the difference between a carbon tax and an emissions trading scheme?

Accepted Answer

**Which variable is fixed.** A carbon tax fixes the **price** and lets emissions find their level; a trading scheme fixes the **quantity** of emissions and lets the price find its level. Both put a cost on emitting; they achieve certainty about different things.

**Carbon tax.** Government sets a price per tonne of CO₂ equivalent. Emitters pay it, and reduce emissions where doing so costs less than the tax.

**Advantages:** **price certainty**, which allows businesses to plan and invest with a known cost; administrative simplicity; and predictable revenue.

**Disadvantage:** **no certainty about the emissions outcome.** If the price is set too low, emissions do not fall by the intended amount, and adjusting it requires a political decision — which is the hard part, since raising a visible tax is politically costly.

**Emissions trading scheme (cap and trade).** Government sets a **cap** on total emissions and issues allowances up to that cap. Emitters must hold an allowance for each tonne, and can buy and sell them.

**Advantages:** **environmental certainty**, since the cap determines the outcome directly; the market finds the cheapest reductions, because anyone who can cut cheaply will do so and sell their surplus; and the cap can be tightened on a pre-announced trajectory.

**Disadvantages:** **price volatility**, which makes investment planning harder; complexity; and vulnerability to over-allocation — if too many allowances are issued, the price collapses and the scheme achieves nothing, which happened in early phases of the EU system.

**How free allocation complicates it.** Allowances given free to protect industries exposed to international competition weaken the price signal, and the phase-out of free allocation is linked to carbon border adjustment.

**Hybrid designs** are now common, and address the main weakness of each: **price floors** and **ceilings** within a trading scheme provide some price certainty, and **market stability reserves** withdraw allowances when surpluses build.

**What matters more than the choice:** **coverage** — which sectors and gases are included, since uncovered sectors face no price at all; the **level** of the price or cap; and whether **revenue** is recycled, since both raise money that can be returned to households or used to fund reductions.

Question 2

What is the social cost of carbon?

Accepted Answer

An estimate, in money, of the damage caused by emitting one additional tonne of carbon dioxide — used to put climate effects into cost-benefit analysis of policies and projects. Why it exists.

Question 3

What is a carbon border adjustment mechanism?

Accepted Answer

A carbon border adjustment mechanism (CBAM) charges imports according to the emissions produced making them, so that goods from countries with weaker climate policy do not undercut domestic producers

Question 4

What are scope 1, 2 and 3 emissions?

Accepted Answer

A classification of an organisation's greenhouse gas emissions by where they occur relative to the organisation, established by the Greenhouse Gas Protocol and now the standard framework for

Question 5

What is a carbon footprint and how is it calculated?

Accepted Answer

A carbon footprint is the total greenhouse gas emissions attributable to a person, product, organisation or activity, expressed as carbon dioxide equivalent. That last part matters: several gases

Question 6

What is a carbon offset and do they actually work?

Accepted Answer

A carbon offset is a credit representing one tonne of CO₂ either removed from the atmosphere or prevented from being emitted somewhere else, bought to compensate for emissions you produced. The types

Question 7

What is embodied carbon?

Accepted Answer

Embodied carbon is all the greenhouse gas emitted in creating and eventually disposing of something — extracting raw materials, manufacturing, transport, construction, maintenance and demolition. It

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