Question

Use a diagram to discuss whether you agree or disagree with the followingstatement.
“Carbon pricing and subsidy achieve the same outcome as they are both price-based market-based instruments.”

Answer 1

I disagree with the statement. Carbon pricing and subsidy won't achieve the same outcome as they are both price -based maket based instruments
Carbon pricing is a method by imposing a tax on the emission of greenhouse gases by firms while their production process
Subsidies are tax incentives given by the government to firms for installing pollution controlling equipment. Through carbon pricing, government can induce firms to produce socially efficient output by reducing their greenhouse gas emission while production process. For each unit of production of their, firm's cost will increase due to the carbon tax. So it forces the firm to reduce their production and output.
But in case of subsidies government has failed to achieve the same outcome as carbon pricing achieved. Because carbon pricing or carbon tax is mandatory obligations on firms. But installating pollution controlling equipment incur cost on firms even though government would provide tax incentives. Most of try to ignore the installation of pollution contolling equipment. Firm will eager to install the pollution controlling equipment only if its operating cost is less than the value of material covered. Firms have to incurr its operational cost also. So subsidies to controll pollution not necessarily to leads to reduce the emission of greenhouse gases.