Strategies to Combat Climate Change: Carbon Tax
Carbon tax is a tax levied on the carbon content of fuels. Carbon is present in every hydrocarbon fuel (coal, petroleum, and natural gas) and is released as carbon dioxide when they are burnt. A tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel. Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions.
In the United States, there is no nationwide carbon tax leveled, although a few states and localities have introduced the tax. In November 2006, voters in Boulder, Colorado passed what is said to be the first municipal carbon tax. It is a tax on electricity consumption (utility bills) with deductions for using electricity from renewable sources (primarily Xcel’s WindSource program). Similar carbon taxes have been passed in parts of California and Maryland.
Both cap-and-trade and carbon taxes give polluters a financial incentive to reduce their emissions. Carbon taxes provide certainty regarding emission prices, while a cap provides certainty regarding emissions quantity. Prices are by far the most efficient way to guide the decisions of producers and consumers.
Some supporters: Vice-President Al Gore, Fed-Ex CEO, Executive Director of Sierra Club
Production may shift to countries with no or lower carbon taxes. Possibility of tax evasion. Higher taxes may encourage firms to hide carbon emissions. Consumers don’t believe that the taxes will be ‘revenue neutral.’
Some Critics: Americans for Tax Reform, Australia under the Abbott government