May 27, 2015 / 1:58 PM / 2 years ago

Carbon tax or trade? Debate loses steam as world embraces both

* Some in business prefer tax

* Emissions trading can be more closely linked to targets

* World Bank figures find $14 bln of carbon pricing is tax

By Barbara Lewis and Susanna Twidale

BARCELONA, May 27 (Reuters) - Tax versus trade is an issue that has stalked the EU Emissions Trading System (ETS) over its 10 years of existence, but is fading in importance as the world moves towards increased use of both methods of cutting greenhouse gas pollution.

The European Union set up the ETS in 2005 as a way of getting round policy-making rules that require the unanimity of member states to decide on a tax.

Following years of legislative fine-tuning to overcome problems such as a glut of carbon allowances, they say it is on track and has advantages over a tax because it can be linked to a political target to cut emissions.

China, the world’s biggest carbon emitter, is convinced.

It aims to launch a national ETS next year, following on from pilot regional schemes.

World Bank figures this week showed trading systems were dominant, but for the first time the Bank included a fiscal number, saying about $14 billion of the estimated $50 billion value of carbon pricing came from tax.

“The debate over the choice between an ETS and a carbon tax has dissipated. The choice depends on the circumstances and context of the country,” it said.

Big business, however, is still divided. Some say a tax is simpler and more predictable.

“A tax is easier to administer, but the European Union has made the choice,” ExxonMobil’s vice president of strategic planning, Bill Colton, said in Brussels this month.

David Hone, chief climate change adviser at Royal Dutch Shell, said at an industry event in Barcelona that achieving a global carbon price would be harder with taxes.

“Taxation is an effective route at a national level but is a very slow way of achieving price harmony,” he said.

As it strives for a global price, the EU is connecting its market, the world’s biggest, with other schemes. A link to the Swiss market is possible this year, officials say.

The EU ETS is struggling with emission allowances at around 7 euros ($7.63) a tonne, too cheap to drive a shift from highly polluting coal to greener energy.

Prices have recovered, however, from a low of less than 2.50 euros in April 2013 and the European Commission, the EU executive, is promising deeper reforms following a series of small fixes to tackle oversupply of carbon allowances.

Meanwhile, some EU nations have complementary taxes.

In Portugal, a tax of five euros per tonne came into force on Jan. 1 to cover sectors not dealt with by the EU ETS.

Sweden, which even before the ETS had a carbon tax, has the world’s highest carbon price of $130 per tonne, according to this week’s World Bank report.

The tax has been criticised as too high, although the Swedish Bioenergy Association says the levy has been highly effective in lowering oil imports.

Beyond Europe, Canada, viewed as an obstacle to cutting greenhouse gas emissions as its economy relies on tar sands oil, is turning into a land of both tax and trade.

Canada’s Conservative government has ruled out a federal carbon tax, but that has not stopped the province of British Columbia from introducing one. Quebec has a cap-and-trade scheme, which has linked up to California‘s, and now Ontario has said it will join in.

$1 = 0.9179 euros Additional reporting by Anna Ringstrom in Stockholm; Editing by Dale Hudson

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