With global commitments firmly set on mitigating the effects of climate change, there have been a multitude of policies carried out aimed at reducing carbon emissions. From replacing fossil-fuel power plants with renewable energy to mass-revegetation campaigns and geoengineering alternatives, the world has not lacked in terms of innovative opportunities. However, one option has often found itself at the forefront: a tax on carbon. But what exactly would that entail, and is it feasible?
The Basics
A carbon tax involves setting a tax rate on greenhouse gas emissions where industries and companies are held financially accountable for the amount of pollution they are emitting. Not dissimilar to income tax based on wealth and pay bracket, a tax on carbon would lead major polluters to pay higher prices than entities with a smaller carbon footprint - the idea behind this being that it would encourage a fast transition towards low-carbon alternatives across a variety of sectors. However, an emissions tax is only one of the tools available within an economic-driven carbon-reduction push.
Closely associated with a tax on carbon are emission trading schemes (ETS) sometimes known as a cap and trade programme. Often conflated, an ETS and a carbon tax are two different tools with different approaches but similar goals. Cap and trade resembles the current free-market economic model that is embraced worldwide, making it relatively easy to implement within business models. An ETS works within similar frameworks and constraints, but uses different economic aspects to promote low-carbon solutions.
Under this scheme, carbon emissions are expressed under a set budget, or cap, that companies and industries must stay under. Each year the cap decreases to promote a continuous reduction of emissions. Every entity concerned by the cap receives a set amount of carbon allowances that determine how much they can emit. If they breach the cap, or are unable to provide a sufficient amount of allowances at the end of the year they face heavy financial penalties. Additional carbon allowances are sometimes made available for auction, or companies with a surplus can choose to trade or sell to those in need. Such a scheme ensures a competitive market for carbon reduction while rewarding sustainability and the implementation of low-carbon technology.
Applications
Enforcing a tax on carbon or enacting an ETS ensures that there is a steep price to pay for high-volume emitters who have been slow to move away from fossil fuels and towards more sustainable work practices. More importantly still, it signifies a shift in attitude where major corporations are held responsible for their environmental actions, while highlighting the efforts made by others. Thirty-two carbon tax initiatives and twenty-eight emission trading schemes are currently in place around the world, with data showing that both have been successful in reducing carbon emissions.
However, while these programmes have shown an ability to help usher in a transition towards a low-carbon future, they need to be more widely implemented to have a much larger impact - especially in high-emitting countries. European nations make up almost half of current ETS and carbon tax programmes, while major polluters such as the United States, China, Canada and Australia have either balked at or dismantled policies relating to it. But with time running out to enact meaningful carbon emission reduction schemes, could these policies become more popular?
The Debate
On top of mitigating the impact of climate change and embracing a more sustainable model, these schemes could yield strong economic benefits. This would include a larger tax income for nations, enabling them to reinvest back into sustainable development, local infrastructure, and improve the quality of life of their citizens. In some cases it has been touted as a way to potentially reduce income tax or help pay off debt. The debate, however, lies in the effect it would have on corporate bottom lines.
As such, in many economically liberal nations such as the United States or Australia, the concept of a tax on carbon is often seen as a way to curb the economic power of multinational companies and local industries. This is then presented as a harmful tax to the public, who are told that the penalties paid by these entities will trickle down to them, leading to higher prices for consumer goods. In addition to this, the concept of using the capital raised through these taxes to help improve social aspects is contrary to conservative fiscal and political beliefs. As a result, carbon taxes tend to be framed as policy aimed at taking money away from hard-working businesses and giving it to people relying on government aid.
These claims have been shown to be misleading by experts and various independent reports, who have tangible evidence that the opposite is in fact true. Research shows that even despite limitations posed by ETS and carbon taxes - namely the inability to completely record or account for total carbon emissions - nations and industries adopting these programmes continue to see their emissions drop. As such, the debate should no longer be about their efficiency in reducing carbon emissions, but how quickly such programmes can be implemented globally.
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