Capping Carbon: A Survey of Carbon Pricing Mechanisms and Their Efficacy

Open Access
Author:
Cosma, Maria Elena
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Ronald Gallant, Thesis Supervisor
  • Russell Paul Chuderewicz, Honors Advisor
Keywords:
  • economics
  • carbon pricing
  • carbon taxes
  • cap-and-trade
  • trading schemes
  • carbon offsets
  • environmental economics
Abstract:
Carbon dioxide is arguably the most complex externality problem faced by today’s markets. Economic theory dictates that a social cost must be applied to this pollutant to bring markets to their true equilibrium and discourage further emissions that lead to climate change. This paper takes a look at various carbon pricing experiments at all levels of government and in private markets as well. It begins by defining the carbon problem in terms of disproportionate emissions, disproportionate effects, and uncertainty. Then, a survey of estimates of the social cost of carbon shows how different approaches to the same variables, such as the discount rate and uncertainty, lead to large differences in the final estimates. A discussion on mandate markets, specifically carbon taxes and trading schemes, identifies common factors for successes and failures. Finally, an analysis of the carbon offset market considers the validity of a voluntary market for carbon pricing. The paper concludes with suggestions for carbon pricing policies in the United States.