Carbon tax
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.
[19] The physical effect of CO2 in the atmosphere can be measured as a change in the Earth-atmosphere system's energy balance – the radiative forcing of CO2.
Carbon taxes are designed to reduce greenhouse gas emissions by increasing prices of the fossil fuels that emit them when burned.
[26] Within Pigou's framework, the changes involved are marginal, and the size of the externality is assumed to be small enough not to distort the economy.
However, such proposals often run the risk of being regressive, and sparking backlash among the public due to an increased cost of energy associated with such taxes.
However, a desirable negative leakage could occur due to reduced demand for coal, oil, and gas in developed countries, lowering prices.
[48] A 2015 British Columbia study found that the taxes reduced greenhouse gas emissions by 5–15% while having negligible overall economic effects.
To close the gap between the two concepts, carbon pricing could put a cap on emissions, remove pollution from underserved communities, and justly divide revenues.
This includes a description as "the most efficient way to guide the decisions of producers and consumers", since "carbon emissions have an 'unpriced' societal cost in terms of their deleterious effects on the earth's climate.
One response has been to specifically allocate carbon tax revenues back to the public in order to garner support.
[75] However, providing information about specific revenue uses in countries that have implemented carbon taxes has been shown to have limited effectiveness in increasing public support.
[78] This drove permit prices to nearly zero two years later, crashing the system and requiring reforms that would eventually appear in EUETS Phase 3.
[83] Economist Gilbert Metcalf has proposed such a system, the Emissions Assurance Mechanism,[84] and the idea, in principle, has been adopted by the Climate Leadership Council.
[85] James E. Hansen argued in 2009 that emissions trading would only make money for banks and hedge funds and allow business-as-usual for the chief carbon-emitting industries.
While a direct tax sends a clear signal to the consumer, its efficiency at influencing consumers' fuel use has been challenged for reasons including:[95] Vehicle fuel taxes may reduce the "rebound effect" that occurs when vehicle efficiency improves.
Consumers may make additional journeys or purchase heavier and more powerful vehicles, offsetting the efficiency gains.
[97] Both energy and carbon taxes have been implemented in response to commitments under the United Nations Framework Convention on Climate Change.
In addition, several countries plan to further strengthen existing carbon taxes in the coming years, including Singapore, Canada and South Africa.
The International Monetary Fund, OECD, and others have stated that current fossil fuel prices generally fail to reflect environmental impacts.
[5] These include Denmark, Finland, Germany, Ireland, Italy, the Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK.
[102] In 2010, the European Commission considered implementing a pan-European minimum tax on pollution permits purchased under the European Union Greenhouse Gas Emissions Trading Scheme (EU ETS) in which the proposed new tax would be calculated in terms of carbon content.
[105] A portion of the proceeds go to the "Payment for Environmental Services" (PSA) program which gives incentives to property owners to practice sustainable development and forest conservation.
[108] In the 2008 Canadian federal election, a carbon tax proposed by Liberal Party leader Stéphane Dion, known as the Green Shift, became a central issue.
However, it proved to be unpopular and contributed to the Liberal Party's defeat, earning the lowest vote share since Confederation.
[113] In 2018, Canada enacted a revenue-neutral carbon levy starting in 2019,[114][115] fulfilling Prime Minister Justin Trudeau's campaign pledge.
6463,[121] the "MARKET CHOICE Act", a proposal for a carbon tax in which revenue is used to bolster American infrastructure and environmental solutions.
To address concerns from conservatives that a carbon tax would grow government and increase cost of living, recent proposals have centered around revenue-neutrality.
The latter two organizations advocate for a specific framework called the Baker-Shultz Carbon Dividends Plan, which has gained national bipartisan traction since its announcement in 2017.
[126][127] The central principle is a gradually rising carbon tax in which all revenues are rebated as equal dividends to the American people.
[129] It is also supported by companies including Microsoft, Pepsico, First Solar, American Wind Energy Association, Exxon Mobil, BP, and General Motors.
