Climate change was not high on the agenda last year – when communities around the world were facing the greatest challenge in decades.
But that’s not to say it’s gone forever. Just the opposite – we have just experienced the hottest September in 141 years, and a troubling pattern persists with intense warmth in the Arctic. Hopefully, we would have learned some lessons from the pandemic on what can be done when creative thinking comes to bear by the time the emphasis returns to this continuing existential danger. Our approach to solving the climate crisis will inevitably be multifaceted.
But the carbon tax is one strong weapon.
However, few nations have taken this path so far. Next, how are carbon taxes functioning? Basically, when burned, they penalize fossil fuels for the CO2 they produce, giving a double benefit over other steps. They increase the productivity of green businesses and goods, and they increase income that can be used to placate resistance to reducing pollution. When it comes to climate change, talk is cheap. The government must deliver now | Matthew PennycookRead moreWe need to make it less financially appealing if we want to decouple our economy from fossil fuels.
Most personal and business decisions in market economies are guided by price, and wherever a fossil fuel is the cheapest source and is not prohibited, it will continue to dominate. Not only that, but as renewables become cheaper, fossil energy is a determined competitor, pouring capital into research and development to push down costs and stay competitive.
This is countered by a punitive price on carbon emissions: there are many options to increase the price of coal, oil, and natural gas. For instance, a tax and trading scheme can be developed that limits total emissions but allows emitters to exchange their carbon allowances.
However, it is only when fossil fuels are burned that it is easier to tax fossil fuels, since this gives a strong price signal to the consumer, which the variable trading price does not.
Right now, fossil oil taxes are levied across the supply chain, from development, as in the United States, to final sales, as in many countries with fuel taxes.
Carbon taxes are better imposed at the earliest possible point for reasons of environmental efficiency and ease of collection: the mouth of the well or mine, the refinery exit gate or the port of entry for imports. The motivation to minimize pollution spreads across the economy in this way. For example, a U.S. tax of $50 per ton of CO2 will increase the price of oil leaving Texas oil fields by around $21 per barrel and raise demand for gasoline and petroleum-based energy products nationally. This will filter down to local stores: items that are environmentally friendly will become comparatively inexpensive, while products that are carbon intensive would be more costly. Ok, maybe it’s because of the “T” word connections we all have. Taxes mean taking away money from firms and, once it is expressed in costs, from people. The thought of making less money doesn’t satisfy anyone. Then there are those that say that it affects the economy as a whole to raise taxes. Yes, that ignores the fact that any tax will affect GDP less than the catastrophic effects of climate change.
But the myopia inherent in the economic status quo makes it impossible to see that. Yeah – no one really likes taxation. They are unpleasant to look at and politically a hard sell.
But what if there was a way for all that to be neutralized? A tiny yet creative political gimmick that makes it not a tax, but a donation, to increase the cost of CO2 pollution? The income from a carbon tax can be handled in many respects.
It doesn’t need to just vanish into the coffers of the government.
Here’s the secret: programs can be structured to achieve what’s called income neutrality, where every dollar raised as a tax goes back into the pockets of people. In the form of an annual per capita carbon dividend, one iteration of this proposal will pass the revenue on to the public. For instance, a $50-per-ton carbon tax in 2020 would give each U.S. household an annual dividend of