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Carbon tax

A carbon tax would add a fee for the carbon dioxide emitted from this coal-fired power plant in Luchegorsk, Russia.

A carbon tax is a tax levied on the carbon emissions from producing goods and services. Carbon taxes are intended to make visible the hidden social costs of carbon emissions. They are designed to reduce greenhouse gas emissions by essentially increasing the price of fossil fuels. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive.[1] When a fossil fuel such as coal, petroleum, or natural gas is burned, most or all of its carbon is converted to CO2. Greenhouse gas emissions cause climate change. This negative externality can be reduced by taxing carbon content at any point in the product cycle.[2][3][4][5]

In its simplest form, a carbon tax covers only CO2 emissions. It could also cover other greenhouse gases, such as methane or nitrous oxide, by taxing such emissions based on their CO2-equivalent global warming potential.[6]

Research shows that carbon taxes do often reduce emissions.[7] Many economists argue that carbon taxes are the most efficient (lowest cost) way to tackle climate change.[8][9] As of 2019, carbon taxes have either been implemented or are scheduled for implementation in 25 countries.[10] 46 countries have put some form of price on carbon, either through carbon taxes or carbon emission trading schemes.[11]

Some experts point out that a carbon tax can negatively affect public welfare, tending to hit low- and middle-income households the hardest and making their necessities more expensive (for instance, the tax might drive up prices for, say, petrol and electricity[12]). Alternatively, the tax can be too conservative, making "comparatively small dents in overall emissions".[13] To make carbon taxes fairer, policymakers can try to redistribute the revenue generated from carbon taxes to low-income groups by various fiscal means.[14][15] Such a policy initiative becomes a carbon fee and dividend, rather than a plain tax.[16]

A carbon tax as well as carbon emission trading is used within the carbon price concept. Two common economic alternatives to carbon taxes are tradable permits with carbon credits and subsidies.

  1. ^ Akkaya, Sahin; Bakkal, Ufuk (1 June 2020). "Carbon Leakage Along with the Green Paradox Against Carbon Abatement? A Review Based on Carbon Tax". Folia Oeconomica Stetinensia. 20 (1): 25–44. doi:10.2478/foli-2020-0002. ISSN 1898-0198. S2CID 221372046. Archived from the original on 29 August 2020. Retrieved 6 October 2020.
  2. ^ Bashmakov, I.; et al. (2001). "6.2.2.2.1 Collection Point and Tax Base". In B. Metz; et al. (eds.). Policies, Measures, and Instruments. Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Print version: Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A.. This version: GRID-Arendal website. Archived from the original on 28 December 2013. Retrieved 8 April 2011.
  3. ^ "Effects of a Carbon Tax on the Economy and the Environment". Congressional Budget Office. 22 May 2013. Archived from the original on 29 September 2017. Retrieved 29 September 2017.
  4. ^ Kalkuhl, Matthias (September 2013). "Renewable energy subsidies: Second-best policy or fatal aberration for mitigation?" (PDF). Resource and Energy Economics. 35 (3): 217–234. doi:10.1016/j.reseneeco.2013.01.002. hdl:10419/53216. Archived (PDF) from the original on 20 August 2018. Retrieved 20 August 2018.
  5. ^ Bashmakov, I.; et al. (2001). "Policies, Measures, and Instruments". In B. Metz; et al. (eds.). Climate Change 2001: Mitigation. Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press, Cambridge, UK, and New York, N.Y., U.S.A. Archived from the original on 5 October 2018. Retrieved 20 May 2009.
  6. ^ "Costs and Benefits to Agriculture from Climate Change Policy". www.card.iastate.edu. Archived from the original on 27 July 2020. Retrieved 19 August 2019.
  7. ^ "Carbon Taxes: What Can We Learn From International Experience?". Econofact. 3 May 2019. Archived from the original on 7 May 2019. Retrieved 7 May 2019.
  8. ^ Gupta, S.; et al. (2007). "13.2.1.2 Taxes and charges". Policies, instruments, and co-operative arrangements. Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (B. Metz et al. Eds.). Print version: Cambridge University Press, Cambridge, U.K., and New York, N.Y., U.S.A.. This version: IPCC website. Archived from the original on 29 October 2010. Retrieved 18 March 2010.
  9. ^ "ECONOMISTS' STATEMENT ON CARBON DIVIDENDS". clcouncil.org. 2019. Archived from the original on 18 January 2019. Retrieved 18 February 2019.
  10. ^ World Bank Group (6 June 2019). State and Trends of Carbon Pricing 2019 (Report). hdl:10986/31755. p. 24, Fig. 6
  11. ^ World Bank Group (6 June 2019). State and Trends of Carbon Pricing 2019 (Report). hdl:10986/31755. p. 21
  12. ^ Cite error: The named reference :11 was invoked but never defined (see the help page).
  13. ^ "What Is A Carbon Tax?". www.weforum.org/. Archived from the original on 1 August 2024. Retrieved 22 August 2024.
  14. ^ IPCC (2001). 7.34. In (section): Question 7. In (book): Climate Change 2001: Synthesis Report. A Contribution of Working Groups I, II, and III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (Watson, R.T. and the Core Writing Team (eds.)). Print version: Cambridge University Press, UK. This version: GRID-Arendal website. p. 122. Archived from the original on 1 May 2011. Retrieved 29 March 2011.
  15. ^ "What a carbon tax can do and why it cannot do it all". blogs.worldbank.org. 19 January 2022. Archived from the original on 17 July 2023. Retrieved 17 July 2023.
  16. ^ "Powering America Forward to Clean Energy". Energy Innovation and Carbon Dividend Act. Archived from the original on 10 July 2021. Retrieved 8 July 2021.

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