Want to decrease consumption of a product or service? Make it more expensive. Basic supply-and-demand. That is the thesis behind a carbon tax, increase the cost to use energy sources that emit carbon is the idea.
Ultra-simple version, there. The implications of a carbon tax are much more complex. ECC will introduce some of those ideas.
A carbon tax is a government-imposed fee for burning fossil fuels … coal, oil, gasoline, natural gas. These fuels produce greenhouse gases, which in turn are considered the reason for climate change.
The argument is that our energy costs do not reflect the future damage to our world from that energy. “Those who benefit from burning fossil fuels generally do not pay for the environmental damage the emissions cause. Instead, this cost is borne by people around the world, including future generations. Imposing a carbon tax can help to correct this externality by raising the price of energy consumption to reflect its social cost.” (Source)
Carbon cost – the exact amount of tax – is up for debate. How big should it be so it is effective?
Typically, a cost-per-ton of greenhouse gas emissions is discussed. “This is difficult because scientists and economists must first agree on which assumptions to use. One group … developed an estimate of $40 per metric ton. A tax reflecting this social cost would increase gasoline prices by 36 cents a gallon. It would add $0.02 to the price of a kilowatt-hour of electricity. The U.N. recommended a carbon tax of between $135 and $5,500 per ton.” (Source)
How high does the cost have to go to make people, companies, schools, cities slow down the use of fossil fuels?
Proponents of a carbon tax say it isn’t just about a tax because there have been subsidies for carbon-based fuels. Just change the system, is the mantra. “What if instead of subsidizing these dirty fuels, we actually began to account for their true cost? By putting a value on the emissions of these polluting gases, we can tackle the issue at the source, and begin to mitigate the worst impacts of a warmer planet.” (Source)
In fairness, various levels of governments have provided various economic breaks to all kinds of energy sources, including renewables. No level playing field.
How would a carbon tax impact families? “When considering the distributional effects on households with different levels of income, policies are often described as progressive, proportional, or regressive. A policy is progressive if the costs constitute a larger proportion of income for high-income households than for low-income households and regressive if the costs constitute a larger proportion of income for low-income households than for high-income households. It is proportional if the policy’s costs constitute the same proportion of income for households with different income levels.” (Source)
Another issue is about low income impact: “Some carbon tax programs seek to address this by ‘recycling’ tax revenues to fund rebates or programs (e.g., Earned Income Tax Credits or energy efficiency upgrades), or allow reductions in other regressive taxes, such as state sales taxes or federal payroll taxes.” (Source)
Enough to debate there far from reducing carbon emissions! Who gets how much money and in what way? What money gets used for other special causes? What is the cut of that money for administration of the work?
Big money it would be, too. “The Congressional Budget Office estimated that a carbon tax starting at $20 per ton and increasing to $34.40 per ton in 10 years could have raised $1.2 trillion. That’s on par with the amount raised by all other excise taxes.” (Source)
This blog has been about a US carbon tax, but the US is not the only carbon generator. Reduction has to be a multi-national issue to succeed. (See the visual about emissions by country, right.)
Why does a website devoted to energy consumers even write about a carbon tax? “The administrative cost of a carbon price can vary widely by the point of regulation, but ultimately a carbon price is passed on to consumers regardless of the point of regulation.”
There are organizations, governments and policymakers lining up on this issue. Something will happen. Whether consumers have a voice is up to them. Self-education takes real work because there are organizations stood-up to represent certain viewpoints now. They provide ample studies that provide varying perspectives. Consumers need to voice their thoughts to policymakers about the way they feel this mechanism may or may not be useful, or how they want it implemented.
A few of the information sources we found interesting:
- The Balance: Carbon Tax, Its Purpose, and How It Works
- Tax Policy Center: What is a Carbon Tax?
- Resources for the Future: Carbon Pricing 104: Economic Effects across Income Groups