A carbon tax is a fee that a government imposes on any company that burns fossil fuels. The most widely discussed are coal, oil, gasoline, and natural gas. When these carbon-rich fuels are burned, they produce greenhouse gases. These gases, such as carbon dioxide and methane, create global warming
Purpose
To reflect the true cost of burning carbon
- It is a Pigouvian tax since it returns the cost of global warming to their producers
- Businesses and households are not accurately charged for using fossil fuels
- The Fed blames the lack of a national carbon tax for climate change
- Extreme weather is forcing farms, utilities, and other companies to declare bankruptcy
How It Works
To implement a carbon tax, the government must determine the external cost for each ton of greenhouse gas emission.
- The price should be much higher to keep temperatures from rising above 1.5 C by 2030
- Pros
- Reduced emissions by motivating consumers to seek cleaner energy
- Boosted economic growth by substantially increasing government revenue
- Funds agencies managing climate change effects
- Cons
- A carbon tax is regressive
Carbon Tax Plus
To be most effective, the carbon tax should be used in conjunction with other measures.
- End government subsidies to coal, oil, and gas companies
- Subsidize wind, solar, and hydropower
- Increase energy efficiency standards
- Require utilities to increase their usage of renewable energy
- Build more public transportation
- Implement carbon emissions trading
Advantages
Reducing emissions in two ways: increasing the cost of carbon-based fuels will motivate companies to switch to clean energy and consumers to become more energy-efficient
- A carbon tax also boosts economic growth: Sweden has reduced emissions by 26% in the past 27 years and its economy grew by 78%
- Raising substantial revenue: revenue can reimburse federal agencies tasked with dealing with climate change
Examples of Where Carbon Taxes are Used in the World
40 countries and 20 municipalities use carbon taxes or carbon emissions trading. That covers 13% of annual global greenhouse gas emissions.
- 88 countries intend to use a carbon tax to meet their Paris Agreement goals
- There are 51 regional and local initiatives
- In 2019, Canada imposed a national carbon tax of $16 a ton of CO₂
- Most of the revenue will be refunded to individuals on their tax bills
Disadvantages
A carbon tax is regressive. By making fossil fuels more expensive, it imposes a harsher burden on those with low incomes.
- To meet the UN’s temperature-rise targets, the United States must reduce fossil-fuel-based energy demand by 85%.
- To do that, the prices of those sources should increase by 44 times.
Emissions by Country
Burning oil, coal, and natural gas create 82% of U.S. greenhouse gas emissions
- Methane generates 9%, nitrous oxide adds 5%, and refrigerants and other sources make up the rest
- While the United States and EU have emitted the most throughout time, China became the world’s largest annual emitter in 2006
- Americans emit the most per person
