#Current Events, #General Science, #Economics, #Household Math - What's a carbon tax?

Question

I've been reading in the news about something called "Carbon Tax". What is it?

Answer

It's a tax on the carbon content of a fossil fuel product at the point of production (or importation).

Analysis

Like most things that are called a "tax", how we look at what it's supposed to accomplish will change the answer. So let me see if I can cover a few viewpoints.

Let me first cover what the tax is first. In essence, it's an amount of money charged by the government on the production of fossil fuels, and the amount of that money charged is dependent on the amount of carbon present in the fuel. For instance, Anthracite (a form of coal) has the highest levels of carbon and natural gas the lowest (according to www.carbontax.org on their webpage on this topic).

One argument for implementing a carbon tax is that the money collected is supposed to be used to defray the costs of the climate change that the burning of the fuel creates. Governments, however, have globally demonstrated an unwillingness, if not complete inability, to spend money targeted to one thing purely on that thing. Instead, the money generally is simply seen as another revenue source that can be spent as desired. This argument, while utopian, ultimately just doesn't pan out.

Another argument for the tax is that it can act as a deterrent on the use of fossil fuels in favour of alternative energy sources or simply reducing energy use. So where would the tax be most noticed by the average person? The gas pump - the carbon tax is passed onto the consumer, who then pays a higher cost for gasoline. Also, the cost of freight also increases since so much of it is fuelled by gasoline and diesel.

A problem here is that alternatives to gasoline fuelled cars are not exactly widely available. Yes, there are things like bicycles and motor scooters that use no and little fuel, respectively, but distance, climate, and use considerations can eliminate them from serious contention (I live in Chiang Mai, Thailand which is a busy metro area. The predominant vehicle here is the motor scooter but it's warm year-round, travel distances tend to be short, and they are used in ways that would never be considered legal in Western countries (multiple riders, stacking goods on the floor of the vehicle, etc). Electric cars are still very expensive and the existent infrastructure often doesn't make them good choices as an all-round car.

Another problem with the "deterrent argument" is that politicians often don't set the carbon tax high enough to act as a deterrent. And so under the guise of a very low carbon tax, politicians feel they can claim the high ground on doing something about climate change, when in fact they are doing very little.

And yet another problem is the idea of "cap-and-trade" policies. The idea here is that a business hit with carbon taxes (say a refinery) won't reduce their pollution, but instead will be able to pay for offsets to their carbon tax and do it in such a way that it's cheaper to buy the offsets rather than pay the actual carbon tax. These last two arguments are better fleshed out here.

Critics point to all these problems and claim that a carbon tax essentially adds up to an unfair tax that hampers competitiveness in the global economy. And so they think that the carbon tax system ought to be scrapped.

And now for my opinion on the whole thing.

The problems with carbon taxes outweigh the benefits - a tax that gets collected that doesn't accomplish anything other than giving government a veneer of climate action and protection is merely a distraction. It's smoke and mirrors - a government will claim to be pro-environment by enacting a carbon tax, thus giving it room to pollute (such as building more oil pipelines). And so I don't like carbon taxes.

However, I do believe that actions need to be taken to reduce pollution and the best way to influence consumer choice is financial. And so programs that help support alternate energy production (such as solar - imagine every rooftop being a solar energy collector) and products that use those alternate sources rather than fossil fuels (such as electric cars) should be supported.