Can 'Carbon Tax' solve climate change?

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 by heating the atmosphere. The resultant climate disruption causes extreme weather such as heat waves, flooding, blizzards, and droughts.

Purpose

The purpose of a carbon tax is to reflect the true cost of burning carbon. Those costs are borne by those who suffer from the effects, such as homeowners, farmers, and ultimately the government. Carbon taxes make sure companies and consumers pay for the external costs they impose on society. It is a Pigouvian tax( a government cost on any activity that creates socially harmful externalities) since it returns the cost of global warming to their producers.

How It Works

To implement a carbon tax, the government must determine the external cost for each ton of greenhouse gas emission. This is difficult because scientists and economists must first agree on which assumptions to use.

One group, the U.S. Interagency Working Group on Social Costs of Carbon, developed an estimate of $40 per metric ton. A tax reflecting this social cost would increase gas prices by 36 cents a gallon. It would add $0.02 to the price of a kilowatt-hour of electricity.

The price should be much higher to keep temperatures from rising above 1.5 C by 2030, according to a New York Times analysis of a 2018 United Nations report.

Pros

• The added cost reduces emissions by motivating consumers to seek cleaner energy

• Boosts economic growth by substantially increasing government revenue

• Funds agencies managing climate change effects

Cons

• A carbon tax is regressive

• A sudden increase in a carbon tax would shock the economy

• It penalizes those who can't switch to alternatives

Examples of Where Carbon Taxes Are Used in the World

The World Bank reports that 40 countries and 20 municipalities use either carbon taxes or carbon emissions trading. That covers 13% of annual global greenhouse gas emissions.

The World Bank adds that there are a total of 88 countries who intend to use a carbon tax to meet their Paris Agreement goals. This represents 56% of global emissions. In addition, there are 51 regional and local initiatives.

In 2019, Canada imposed a national carbon tax of $16 a ton of CO₂.Thi s will increase to $39 a ton by 2022. Most of the revenue will be refunded to individuals on their tax bills. Canada is warming twice as fast as the rest of the world.

In 2013, Britain imposed a $25 tax per metric ton of CO₂. As a result, utilities switched from coal to natural gas. Greenhouse gas emissions fell to their lowest level since 1890.

There are 10 U.S. states that have capped greenhouse gas emissions from power plants. They also require companies to buy tradable pollution permits.

Carbon Tax Plus

To be most effective, the carbon tax should be used in conjunction with other measures. Here are five other solutions to global warming that should be implemented.

1. End government subsidies to coal, oil, and gas companies. They cost the government $25 billion a year. But their elimination would only increase prices by 2% to 3%.

2. Subsidize wind, solar, and hydropower. They have lowered the cost and attractiveness of these alternatives, but much more needs to be done. Subsidies have only increased wind and solar power to 10% of U.S. electricity generation. That's not enough to halt global warming.

3. Increase energy efficiency standards. Increase auto emissions standards. Require utilities to increase their usage of renewable energy. Require improved building efficiency.

4. Build more public transportation. Redesign cities to reduce the need to drive cars. This is also one of the four best ways to create jobs. A University of Massachusetts at Amherst study found $1 billion spent on public works created 19,975 jobs. Tax cuts created 7,300 jobs for every $1 billion in foregone tax revenue.

5. Implement carbon emissions trading. This policy allows companies to buy or sell government-granted allotments of carbon dioxide output. Governments distribute a finite number of CO₂ “credits” to companies. That’s the “cap” part. The companies can only emit as much CO₂ as they have credits for. Those below their CO₂ limit can sell credits to companies that exceed the limit. That’s the “trade” part. Industries, like utilities, are the biggest traders. They burn coal and other fossil fuels that emit the most greenhouse gases.