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Defining effective carbon taxes
What EXACTLY IS a carbon tax?
A carbon tax is a levy on fossil fuel energy generating (power plants) industries (directly), and/ or fossil fuel intensive companies (directly), and consumers (indirectly), that use fossil fuels and emit greenhouse gas emissions (GHGs). The carbon tax puts a price on carbon for the cost to humanity and the planet of the use of fossil fuels (damage to the public health, damage to the environment, from fossil fuel combustion - negative externalities). GHGs other than carbon dioxide can also be included in carbon tax systems (however, carbon dioxide remains the most prevalent GHG included in carbon taxes worldwide). Carbon-intensive industries that could be in carbon tax systems include: fossil fuel power plants (always in carbon tax systems), and/ or industries and companies such as fossil fuel intensive product manufacturing companies, and/ or cement and steel manufacturing, and/or transportation sectors that rely on fossil fuel energy.
The following is a brief description of carbon taxes in Europe, which is where most carbon taxes in the world currently are (as opposed to the much more widely globally adopted emission trading systems - see Putting a Price on Carbon for more information)>>>
In recent years, several countries have taken measures to reduce carbon emissions using environmental regulations, emissions trading systems (ETS), and carbon taxes. In 1990, Finland was the world’s first country to introduce a carbon tax. Since then, 15 European countries have followed, implementing carbon taxes that range from less than €1 per ton of carbon emissions in Ukraine and Poland to over €100 in Sweden.
Sweden levies the highest carbon tax rate at €112.08 (US$ 132.17) per ton of carbon emissions, followed by Switzerland (€83.17, $98.08) and Finland (€62.00, $73.11). You’ll find the lowest carbon tax rates in Poland (€0.07, $0.08), Ukraine (€0.33, $0.39), and Estonia (€2.00, $2.36).
Carbon taxes can be levied on different types of greenhouse gases, such as carbon dioxide, methane, nitrous oxide, and fluorinated gases. The scope of each country’s carbon tax differs, resulting in varying shares of greenhouse gas emissions covered by the tax.
The true cost of negative externalities of fossil fuel combustion cannot be tabulated in exact terms, for it’s the accumulated cost of the damage to the environment, climate change, damage to human health, and other costs of the use of fossil fuels (such as cost to public health and the environment of methane leaks from gas power plants), that can only be estimated. The carbon tax itself can be a fee on the production, distribution, use of fossil fuels; and the use of fossil fuel based energy for industries. The government sets a price per ton on carbon, and then that translates into a tax on oil, coal and natural gas. This ultimately means higher prices for the end consumer for things like gas and electricity due to higher costs for production and distribution of fossil fuels in the case of top-down industry taxes.
Positive effects of carbon taxes on the reduction of GHGs from industries
Businesses and utilities facing a carbon tax have the incentive to invest more in energy efficiency, renewable energy and other GHG reducing technologies, maintain the market price for their goods and services, and absorb the cost of the tax, or pass the added fee on to individual consumers by raising prices. Individual consumers then have the incentive to reduce consumption and increase their energy efficiency habits due to steeper costs for energy and gas. Revenue from carbon taxes can, in some cases, go to energy efficiency measures, sustainable transportation, renewable energy, and other clean energy projects, but often the revenue is simply refunded to the public.
Carbon tax revenue is usually distributed, at least in part (if not completely), as: personal income or business income tax cuts, tax rebates, tax credits; a "carbon dividend" in the form of a monthly, quarterly, bi-annual, or annual, check to taxpayers; or a carbon tax can go to reducing other taxes for the public and businesses in other arenas (such as payroll tax reductions). Carbon tax revenue is also sometimes both invested in clean energy projects and given back to the public as refunds.
Pros and cons of carbon taxes
The principle of mitigating negative externalities (such as the damage caused by fossil fuels), and having the relative costs of pollution paid for, is the primary purpose of the carbon tax. Who bears the ultimate burden of the tax is a hypothetical question that has a couple of answers. Unless the carbon tax is specifically aimed at consumers, businesses that produce and distribute fossil fuels should at least consider bearing the brunt of the tax. However, in practice, individuals ultimately end up paying more for gas and higher prices on their utility bill, among other fossil fuel related goods and services, from companies that haven't already fully embraced renewable energy.
A carbon tax is enacted with the underlying goal of lowering HGs. Low carbon measures such as sustainable public transportation, energy efficiency, and technologies such as carbon capture and storage, become even greater alternatives when a carbon tax is enacted; as fossil fuel intensive industries are penalized. One other benefit of a carbon tax, besides the revenue generated for the public good, and the incentives to reduce fossil fuel consumption and increase energy efficiency; is the increased attractiveness of the cost of renewable energy.
Denmark, Finland, Ireland, the Netherlands, Norway, Sweden, Switzerland, Canada, Chile, and the UK, (among other nations, countries, and states), have all successfully implemented a partial carbon tax on some goods and services, while not all being able to implement a broad, universal carbon tax. Generally, reports of lower greenhouse gas emissions follow the passage of a carbon tax (to the tune of 2-3% annually in most cases this decade). The province of British Columbia, in Canada, has reported drops of around 5% annually of greenhouse gas emissions due to its aggressive carbon tax policies.
This is a global map of carbon tax and emission trading systems (cap-and-trade systems) that are existing and planned for implementation: