Carbon Tax and Its Positive Impacts
Josh Hodsden
MPH in Environmental Systems and Human Health
How do we keep the Earth's temperature from continuing to increase and avoid the most dangerous risks to society? One solution is by implementing carbon taxes.
What is a carbon tax?
Emissions of carbon dioxide and other greenhouse gases are changing the climate.
A carbon tax puts a price on those emissions, encouraging people, businesses, and governments to produce less of them.
-Urban-Brookings Tax Policy Center
From the Urban-Brookings Tax Policy Center:
Under a carbon tax, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit. Businesses and consumers will take steps, such as switching fuels or adopting new technologies, to reduce their emissions to avoid paying the tax.
Taxes on greenhouse gases come in two broad forms: an emissions tax, which is based on the quantity an entity produces; and a tax on goods or services that are generally greenhouse gas-intensive, such as a carbon tax on gasoline.
A carbon tax’s burden would fall most heavily on energy-intensive industries and lower-income households. Policymakers could use the resulting revenue to offset those impacts, lower individual and corporate taxes, reduce the budget deficit, invest in clean energy and climate adaptation, or for other uses.
Why is this important?
Rich and developed nations are responsible for 50% of carbon emissions, a major cause of global warming, yet only comprise 12% of the world's population. These countries include the U.S., Canada, Japan, and a majority of western Europe (Popovich & Plumer, 2021).
Over the past 170 years, Earth's temperature has increased about 2 degrees Fahrenheit and increased weather-related disasters (Metcalf, 2019).
Recent surveys indicate that 60% of Americans are concerned about climate change and 52% want climate change to be prioritized. They are most willing to use carbon taxes to improve infrastructure and research innovation (Fischer & Jacobsen).
This is not only in the U.S.–In a study done on Latin American countries, the top 10% of earners created over 29% of total carbon output, which is 12.2 times higher than the bottom 10% of earners (Zhong et al., 2020).
Emerging research highlights that carbon pricing can induce a shift to cleaner electricity usage (Gugler et al., 2021)
Global warming increases health risks: In one year alone, from 2019–2020, 161 million more people faced hunger (United Nations, 2021).
Who has carbon taxes?
1990: Finland and Poland
1991: Norway and Sweden
1994: Denmark
2005: European Emissions Trading System (ETS) implemented
2007 and 2008: Alberta and British Columbia, Canada
2010: Japan
2012: Australia and California
2014: Mexico
2018: Argentina
2019: All of Canada (Metcalf, 2019)
Current countries/areas with carbon tax or emissions trading system (ETS)
How much of an impact do carbon taxes create?
Countries with carbon pricing have 2% less in emissions growth per year.
Those without carbon pricing have 3% growth each year. This graph is for the years 2007–2017 (Best, et al., 2020).
Rays of Light
Vulnerable populations:
A carbon tax payment will increase the income of 98% of the poorest Americans and overall, 84% of those in the bottom half of earners (Fremstad & Paul, 2019).
Studies have found that if framed with a lens of fairness, the general public is more willing to support carbon taxes. In other words, in order to accept a carbon tax, it's important for people to feel that everyone is contributing (Jagers et al., 2021). The more one uses, the more one pays. This in turn will create buy-in.
California's climate policy is working toward a reduction of greenhouse gases and improve air quality for vulnerable populations (Hernandez-Cortes & Meng, 2020).
California's cap and trade program is showing progress in reducing the "environmental justice gap" in carbon co-pollutants.
References
Best, R., Burke, P. J., & Jotzo, F. (2020). Carbon Pricing Efficacy: Cross-Country Evidence. Environmental & Resource Economics, 77(1), 69–94. https://doi.org/10.1007/s10640- 020-00436-x
Bordoff, J., & Kaufman, N. (2018). A Federal US Carbon Tax: Major Design Decisions and Implications. Joule, (12), 2487–2491. https://doi.org/10.1016/j.joule.2018.11.020
Deschenes, O., Deshmukh, R., Lea, D., Meng, K., Weber, P., Cobian, T., Hernandez Cortes, D., Lee, R., Malloy, C., Mangin, T., Meng, M., Oliver, M., Sum, S., Thivierge, V., Uppal, A., Kordell, T., Clemence, M., O'Reilly, E., & Kelley, A. (2021). Enhancing equity while eliminating emissions in California's supply of transportation fuels. Zenodo. https://doi.org/10.5281/zenodo.4707966
Fischer, C., & Jacobsen, G. D. (2021). THE GREEN NEW DEAL AND THE FUTURE OF CARBON PRICING. Journal of Policy Analysis and Management, 40(3), 988–995. https://doi.org/10.1002/pam.22313
Fremstad, A., & Paul, M. (2019). The Impact of a Carbon Tax on Inequality. Ecological Economics, 163, 88–97. https://doi.org/10.1016/j.ecolecon.2019.04.016
Fried, S., Novan, K., & Peterman, W. B. (2018). The distributional effects of a carbon tax on current and future generations. Review of Economic Dynamics, 30, 30–46. https://doi.org/10.1016/j.red.2018.02.001
Goulder, L. H., Hafstead, M. A. ., Kim, G., & Long, X. (2019). Impacts of a carbon tax across US household income groups: What are the equity-efficiency trade-offs? Journal of Public Economics, 175, 44–64. https://doi.org/10.1016/j.jpubeco.2019.04.002
Gugler, K., Haxhimusa, A., & Liebensteiner, M. (2021). Effectiveness of climate policies: Carbon pricing vs. subsidizing renewables. Journal of Environmental Economics and Management, 106. https://doi.org/10.1016/j.jeem.2020.102405
Hernandez-Cortes, D., & Meng, K. C. (2020). Do environmental markets cause environmental injustice? Evidence from California’s carbon market (No.w27205). National Bureau of Economic Research.
Jagers, S. C., Lachapelle, E., Martinsson, J., & Matti, S. (2021). Bridging the ideological gap? How fairness perceptions mediate the effect of revenue recycling on public support for carbon taxes in the United States, Canada and Germany. The Review of Policy Research, 38(5), 529–554. https://doi.org/10.1111/ropr.12439
Kian Mintz-Woo, Francis Dennig, Hongxun Liu & Thomas Schinko (2021) Carbon pricing and COVID-19, Climate Policy, 21:10, 1272-1280, https://10.1080/14693062.2020.1831432
Kotchen, M. J., Turk, Z. M., & Leiserowitz, A. A. (2017). Public willingness to pay for a US carbon tax and preferences for spending the revenue. Environmental Research Letters, 12(9), 94012. https://doi.org/10.1088/1748-9326/aa822a
Lawley, C., & Thivierge, V. (2018). Refining the Evidence: British Columbia’s Carbon Tax and Household Gasoline Consumption. The Energy Journal (Cambridge, Mass.), 39(2), 35–61. https://doi.org/10.5547/01956574.39.2.claw
Metcalf, G. E. (2019). On the Economics of a Carbon Tax for the United States. Brookings Papers on Economic Activity, 2019(1), 405–484. https://doi.org/10.1353/eca.2019.0005
Popovich, N., & Plumer, B. (2021, November 12). Who Has The Most Historical Responsibility for Climate Change? The New York Times. https://www.nytimes.com/interactive/2021/11/12/climate/cop26-emissions-compensation.html
Urban-Brookings Tax Policy Center. (2020, May). What Is a carbon tax? https://www.taxpolicycenter.org/briefing-book/what-carbon-tax.
The World Bank. 2021. “State and Trends of Carbon Pricing 2021” (May), World Bank, Washington, DC. https://doi:10.1596/978-1-4648-1728-1. License: Creative Commons Attribution CC BY 3.0 IGO
Zhong, H., Feng, K., Sun, L., Cheng, L., & Hubacek, K. (2020). Household carbon and energy inequality in Latin American and Caribbean countries. Journal of Environmental Management, 273, 110979–110979. https://doi.org/10.1016/j.jenvman.2020.110979