Cap-and-trade is a failed policy. Under the Kyoto Protocol, global emissions have continued to increase and the European Union Emissions Trading System (EU ETS) price collapsed due to hot air and over allocation of emissions. The time has come to abandon cap-and-trade as a method or means of potentially reducing global greenhouse gas (GHG) emissions. As such, the European Union Twenty-Seven (EU-27) should abandon the EU ETS and adopt a carbon tax with reinvestment (CTR), leading the way for the United Kingdom, United States, and China to also adopt this strategy. Together, the EU-27, United Kingdom, United States, and China account for 57% of total carbon-dioxide emissions, not including land use and deforestation. If these countries, which account for approximately 65% of global gross domestic product (GDP) and over 60% of world trade, adopt this system, it would provide a significant incentive for the remainder of the world to adopt similar legislation.
The tax would apply to all goods and services based on emissions intensity plus shipping emissions, and once collected, countries can retain the revenue for the purposes of rebuilding the power grid and developing alternative energy sources for transportation. This formula will lead to significant reductions in GHG emissions. With a CTR in place, the EU, United States, United Kingdom, and China would reduce their economy-wide emissions by 48%, 49%, 51%, and 13%, respectively, within twenty years. This would amount to a combined 34.2% reduction of current global emissions, which is a significant down payment to avoiding the world warming by more than 2oC. With respect to China, the 13% reduction is contrasted with most current projections that it will double its GHG emissions. This would occur while automatically putting a border-trade adjustment in place. Finally, the EU is heavily dependent on energy imports. The majority of these imports come from Russia, which has flexed its energy muscle multiple times under President Putin. With a CTR structure, the EU would become energy independent in the power and heating sectors, thus providing added political, as well as economic power, for the EU on the world stage.