Carbon taxes

Carbon taxes are a type of tax that is levied on the carbon content of fuels. They are a form of carbon pricing. Carbon is present in every hydrocarbon fuel (coal, petroleum, and natural gas) and is released as carbon dioxide (CO2) when they are burned. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not convert hydrocarbons to CO2. CO2 is a greenhouse gas which increases radiative forcing and contributes to global warming.

Overview

A carbon tax is a way to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere. If a person or company wants to burn fossil fuels and thereby increase the concentration of atmospheric CO2, they must pay a fee that is commensurate with the damage they are causing to society.

Implementation

Carbon taxes can be implemented by taxing the carbon content of fossil fuels at any point in the product cycle. The tax is typically levied on the carbon content of fossil fuels, rather than the mass of the fuel itself. This is because the carbon content of a fuel determines its energy potential and its impact on the climate when burned.

Effectiveness

The effectiveness of a carbon tax depends on the responsiveness of the demand for carbon emissions to the price of carbon. If the demand for carbon emissions is inelastic, a carbon tax may not significantly reduce carbon emissions. However, if the demand for carbon emissions is elastic, a carbon tax can be an effective tool for reducing carbon emissions.

Criticisms

Critics of carbon taxes argue that they disproportionately affect low-income households, who spend a larger proportion of their income on energy costs. However, this can be mitigated by using the revenue from the tax to fund rebates or subsidies for low-income households.

See also

• Emissions trading
• Environmental economics
• Pigovian tax
• Renewable energy