We’re well past the point of debate. Climate change is real, and human activity is the driving force behind it. Recent studies confirm that dire projections for our future are correct, and every new study that comes out tends to paint the situation as being even more severe than we initially thought.
The time has come to act and to act with all possible haste.
One popular solution that has been proposed is by levying carbon taxes to discourage the use of fossil fuels. It seems a simple solution, but any possible solution for a problem as reaching as climate change is bound to have more to it than that.
For that reason, it’s worth examining what a carbon tax is and what the potential carbon tax pros and cons could be.
What Is a Carbon Tax?
A carbon tax is a fee that the government levies on any company or organization that burns fossil fuels. They’re not a new concept. Many individuals and non-profits like the Climate Leadership Council have been putting them forward as full or partial solutions to climate change for years.
But since our society is so invested in fossil fuels, the effects would be far-reaching and there has been substantial push-back. Any industry that uses coal, oil, gasoline, or natural gas would be impacted. Not only that, but any industry that relies on the transportation of goods would also see ripple effects.
Some policymakers have put forward guidelines on how to implement a carbon tax to mitigate these effects. So, it’s worthwhile to examine what a potential carbon tax would look like and how it would work.
How Does It Work?
The purpose of a carbon tax is not just to discourage the use of fossil fuels, but to penalize companies to the approximate financial cost of their use. Citizens, businesses, and ultimately the government itself currently bear the financial cost of fossil fuel use. A carbon tax would ideally shift these costs back to the offending company where they belong.
So before a carbon tax could be implemented, the government would first need to assess the cost for each ton of greenhouse gas emissions. This is difficult, however, as there are myriad factors that affect the financial cost and researchers are not in agreement on how to calculate them.
The best estimate that we have comes from the U.S. Interagency Working Group on Social Costs of Carbon. They posit that the cost of releasing one metric ton of greenhouse gases should be $40.
However, a United Nations report found that the true cost should be far higher. In order to prevent temperatures from rising by 1.5 degrees Celcius by 2030, they estimate that a carbon tax would need to be between $135 and $5,500 per ton.
But assuming for convenience that $40 is correct, how then do we determine the effects of levying this fee?
Carbon Tax Pros and Cons
$40 doesn’t sound like much by itself. However, because of just how reliant we are on fossil fuels, that $40 quickly builds up to a much larger number.
For an average consumer, that would translate to an extra 36 cents per gallon of gas. Which again, may not seem like much, but we’ll explore its ramifications shortly. For now, let’s look at the benefits of a carbon tax and why it has its proponents.
Pros
The first and most obvious benefit is that by increasing the cost of using fossil fuels, this will reduce their use.
Everyday consumers will be forced to become more conscious of the energy that they use, and businesses will need to become more efficient in order to remain profitable. We could expect to see much heavier investment in energy-efficient devices, construction schemes, and transportation.
But increasing the cost of fossil fuels has a potentially greater effect as well.
Some hope that by making it untenable for businesses to remain reliant on fossil fuels, they will spur heavier investment in alternative energy sources. Factories and warehouses will have to invest in solar energy. Power companies will need to explore options aside from burning coal or oil.
A carbon tax could also boost economic growth, helping to mitigate some of the costs of its implementation. Sweden, for example, implemented a carbon tax in 1991. In the ensuing period of time, they have cut carbon emissions by 23% while growing their economy by 55%.
And as a tax, the plan, of course, has the potential to raise significant government revenues. The Congressional Budget Office speculates that even a modest carbon tax could raise more than a trillion dollars over a ten year period. Ideally, that money could be used to bolster government agencies like FEMA and the National Flood Insurance Program that deal directly with the effects of climate change in our communities.
Cons
Perhaps the biggest bane of a carbon tax is its regressive nature. Any time that the cost of fuel increases for any reason, it always low-income communities that shoulder a disproportionate burden.
Low-income families and individuals spend a higher percentage of their income on necessities like fuel, to begin with, and a carbon tax would only exacerbate this. They’re also unlikely to be able to afford to switch to electric vehicles, giving them no alternative but to pay the higher prices.
And as we mentioned, fuel is not the only necessity that would be affected. The higher cost of food, clothing, and other basics would hit low-income Americans the hardest.
And that’s assuming that a carbon tax was levied at the moderate $40 per ton rate, and not the U.N.’s more substantial recommendation. In short, a carbon tax without significant aid to vulnerable communities could be a humanitarian disaster.
Building a Path Forward
It’s clear that any future on the planet earth will require a move to becoming a carbon-neutral, if not carbon-negative, society. And to that end, we must be prepared to use any means at our disposal.
As with any potential remedy, there are carbon tax pros and cons. No solution is perfect, nor will any make all parties happy. But considering the stakes at play, we must reserve all out options.
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