Carbon tax
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A carbon tax is a tax on energy sources which emit carbon dioxide into the atmosphere. It is an example of a pollution tax, which has been proposed by economists as preferable because it taxes a "bad" rather than a "good" (such as income). As a carbon tax addresses a negative externality, it is classed as a Pigovian tax, named after Arthur Pigou, who first proposed a solution to the problem of externalities.
A carbon tax, because of the link with global warming, is often associated with some kind of internationally administered scheme; however, this is not intrinsic to the principle, and politically improbable. The European Union has discussed a carbon tax covering its member states, in addition to a carbon emissions trading scheme, starting in January 2005. However, emissions trading systems do not constitute a Pigovian tax as (a) the payment for emissions is not received by a governmental body, and (b) the price per unit of emissions is not fixed as it is in tax systems, rather it is a market price that fluctuates.
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[edit] Aims
[edit] Theoretical background
In economic theory, pollution is considered a negative externality because it has a negative effect on one or more parties not directly involved in a transaction. For instance, a factory emitting carbon dioxide would be considered to be the source of a negative externality. A negative externality represents part of the social cost of production that is not incorporated into the private cost of producers. As a result, firms would consider it cheaper to pollute than to find other means of production, because not all the costs of production have been "internalised".
To address this problem, Pigou proposed a tax on the good — in this case carbon dioxide — whose production was the source of the negative externality so as to accurately reflect the cost of the good's production to society, thereby internalising all costs associated with the good's production. Tax on a negative externality is called a Pigouvian tax.
The carbon tax is an indirect tax — a tax on a transaction — as opposed to a direct tax, which taxes income. As a result, some American conservatives have supported the carbon tax because it taxes at a fixed rate, independent of income, which would dovetail with their support of a flat tax.[1]
[edit] Political issues
The purpose of a carbon tax is both financial (like all taxes) and environmental. It can be implemented by taxes on gasoline and on certain types of energy production, such as coal-fired power plants.
Special types of carbon taxes include:
- optimal carbon tax
- value-at-risk carbon tax
[edit] Economic Issues
Assuming negative externalities associated with carbon dioxide production, a worldwide Pigouvian tax on carbon dioxide emissions could be an economically efficient improvement as long as the tax revenue was not wasted. However, it does not follow that a carbon dioxide implemented on a national or sub-national level would be an improvement because of large substition effects.
For example, if the United States implemented a carbon tax, many energy intensive industries (power production, aluminium production, car manufacturing, data centers etc...) would simply migrate to nations without a carbon tax, and many of these countries would be developing nations that are dramatically less energy efficient than the United States. Coal fired plants would be built on the border. Ships would fuel in nearby countries. If carbon intensive industries simply migrated abroad, the net effect would be almost no improvement in carbon dioxide emissions (and possibly even increases) coupled with substantial economic harm to the United States. Many economists believe, a carbon tax implemented on less than a worldwide basis would likely have negligible impact on worldwide carbon dioxide production and simply cause economic harm to the countries implementing the tax.
[edit] Implementation
On January 1, 1991, Sweden enacted a carbon tax, placing a tax of .25 SEK/kg ($100 per ton) on the use of oil, coal, natural gas, liquefied petroleum gas, petrol, and aviation fuel used in domestic travel. Industrial users paid half the rate (between 1993 and 1997, 25% of the rate), and certain high-energy industries such as commercial horticulture, mining, manufacturing and the pulp and paper industry were fully exempted from these new taxes. In 1997 the rate was raised to .365 SEK/kg ($150 per ton) of CO2 released.[1]
Finland, the Netherlands, and Norway also introduced carbon taxes in the 1990s.
In 2005 New Zealand proposed a carbon tax, setting an emissions price of NZ$15 per tonne of CO2-equivalent. The planned tax was scheduled to take effect from April 2007, and applied across most economic sectors but allowed a standing exemption for methane emissions from farming and provisions for special exemptions from carbon intensive businesses if they agree to adopt world's-best-practice standards of emissions. After the 2005 election, the minor parties supporting the Government opposed the proposed tax, and it was abandoned in December 2005. The Government said the tax would not be effective at reducing carbon emissions.
President of the United States, Bill Clinton proposed a BTU tax that was never adopted. His Vice President, Al Gore, had strongly backed a carbon tax in his book, Earth in the Balance, but this had proven to be a political liability for Gore after his Republican opponents cited it in claims of him being a "dangerous fanatic". In 2000, when Gore ran for President, one commentator labeled Gore's carbon tax proposal as a "central planning solution" harking back to "the New Deal politics of his father."[1] In April 2005, Paul Anderson, CEO and Chairman of Duke Energy, called for the introduction of a carbon tax.[2]
[edit] See also
[edit] Notes and references
- ^ a b Noah, Timothy (Nov. 9, 2006). The GOP Triangulates. Slate.
[edit] External links
- Global Taxes -- analysis by Global Policy Forum
- Energy Taxes -- analysis by Global Policy Forum
- State Carbon Tax Model - downloadable (spreadsheet) model
