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Abstract

It is time for the European Union to dump the EU-ETS cap-and trade system, as it is not working. By adopting a carbon tax with reinvestment, the European Union (EU) could reduce its economy-wide emissions by forty-eight percent (and emissions from buildings and utilities by sixty-five percent) within twenty years while automatically putting in place a border tax adjustment. By adopting the carbon tax with reinvestment, the EU's trading partners would be heavily encouraged to adopt the same system, thereby dramatically reducing global emissions. This adoption would occur much like the EU adopting the Value-Added Tax and 150 countries following within a short time after. The impacts would be dramatic, from potentially reducing emissions in the United States by forty nine percent and emissions from building and utilities by sixty-seven percent over twenty years to China actually reducing its emissions over the next twenty years by a nineteen percent reduction in emissions for buildings and utilities, and a thirteen percent economy-wide reduction instead of almost doubling them. This system would also encourage countries such as Brazil and Malaysia to stop deforesting or else lose access to the world's largest markets for their exports.

The EU countries would utilize the proceeds from the tax, once collected, to rebuild the electric power grid in order to significantly reduce carbon emissions. The structure thereby creates both a penalty for states that emit significant amounts of greenhouse gases and an incentive for states to significantly change their emissions profile by investing in clean hybrid energy resources.

The EU once again has an opportunity to lead the world in climate change mitigation by adopting a tax that will fund the replacement of its current energy infrastructure, not only reducing emissions, but also increasing the region’s energy security and reducing its reliance on unreliable energy suppliers.

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