What is a carbon tax?
It is a government tax on companies that use fossil fuels. Oil, coal, and natural gas are typical fossil fuels. They produce greenhouse gases when burned. Greenhouse gases in the atmosphere cause global warming and lead to extreme climate change, which causes enormous harm to the environment. In other words, the carbon tax is designed to lessen emissions of greenhouse gases from the atmosphere.
What is the purpose of the carbon tax?
The biggest purpose of the carbon tax is to contribute to environmental protection by reducing excessive emissions by requiring companies to pay for carbon dioxide emissions generated by burning fossil fuels. Over time, the amount of fuel burned by companies has increased rapidly, accelerating global warming. Accordingly, global organizations and governments in each country suggest that the final cost of products and services produced by corporates should also include responsibility for external impacts in the course of their activities. Taxes collected from companies and individuals associated with fuel usage are used to encourage companies to invest in alternative and environmentally friendly energy and to reduce their dependence on fossil fuels. The first country to introduce the carbon tax was Finland. The carbon tax was introduced in 1990. Neighboring countries began to introduce it, with 27 countries as of 2021. Several other countries are now considering implementing the carbon tax.
How does the carbon tax work?
The government must determine the amount of tax on greenhouse gas emissions to implement the carbon tax. It is common to set a price per ton of greenhouse gas emissions. Carbon pricing is set by agreement with the government, scientists and economists. Thus, the cost of social responsibility for carbon emissions varies from country to country. In addition, the carbon tax is levied on individuals as well as corporations. For example, the carbon tax is applied to the price of gas for cars, and it is included in the cost of electricity used at home. Thus, companies that emit carbon are motivated to reduce fossil fuel use and switch to alternative energy to avoid paying carbon taxes, and individuals are motivated to find products and services that produce less carbon.
What are pros and cons of the carbon tax?
Although the amount of reduction in greenhouse gas emissions was different depending on the size of the tax, the carbon tax was found to have reduced the effect of greenhouse gas emissions. However, the introduction of a carbon tax has also created some negative aspects. The advantages and disadvantages of the carbon tax are as follows:
Advantages of the carbon tax
- High tax incomes – The amount of tax that the government collects can increase significantly by implementing the carbon tax. The tax could support research and development of eco-friendly energy and various national projects. In addition, based on this, it can be a great driving force for economic growth. According to one statistic, Sweden’s economy has grown 78 percent over the past 27 years, while reducing emissions by 26 percent since Sweden introduced the carbon tax (Amadeo, 2022).
- Encouraging the energy conversion process – The carbon tax will encourage alternative energy conversion in businesses and private homes. Competition will intensify as many companies decide to participate in the renewable energy market. As a result, strong competition will lead to lower prices of the alternative energy. In other words, it can accelerate the popular usage of environmentally friendly energy instead of fossil fuels.
- A contribution to global economic fairness – Developing countries or agriculture-oriented countries that emit little carbon often suffer great damage from climate change caused by carbon emissions. Such an event goes against global fairness. Introducing a carbon tax to impose costs on environmentally damaging activities may be one of the prerequisites for global fairness.
Disadvantages of the carbon tax
- Transfer of corporate headquarters – Companies can relocate their headquarters to countries where carbon taxes are not applied to maximize profits. Therefore, global cooperation is needed to prevent transfers to tax havens.
- Negative impact on corporate operations and product prices – Some companies that rely on fossil fuels may become inoperable. The introduction of the carbon tax can lead to soaring production costs and make it difficult for companies to operate as they lose competitiveness to other companies that use alternative resources as their main energy source. In addition, products produced using fossil fuels can also become more expensive with the introduction of the carbon tax, which could antagonize some of the public.
- Discussion of the appropriate standards for CO2 emissions – Until today, there is no universal standard for how negatively CO2 emissions affect the environment and accelerate global warming. Countries have different opinions, and some argue that carbon dioxide emissions have nothing to do with global warming. Therefore, it seems that it takes a lot of effort and time for the carbon tax to become universalized around the world.
Conclusion
As explained in Sweden’s economic growth, some argue that the introduction of the carbon tax will help the economy grow, but others argue that it can cause imbalances in economic growth by reducing consumption of individuals and businesses. Still, others argue that the carbon tax must be implemented with other measures to be positive in every way. There are still ongoing debates on how to implement the carbon tax in each country properly. There are many advantages and disadvantages of the carbon tax. But protecting the environment of the planet is the first responsibility of humans.
References
Henricks, M. (2021). Understanding How Carbon Tax Works. [online] SmartAsset. Available at: https://smartasset.com/taxes/carbon-tax [Accessed 20 June 2022].
Lai, O. (2021). What Countries Have A Carbon Tax? [online] Earth.org – Past | Present | Future. Available at: https://earth.org/what-countries-have-a-carbon-tax/#:~:text=Carbon%20Tax%20Countries [Accessed 20 June 2022].
Bondarenko, P. (2015). Carbon tax. In: Encyclopædia Britannica. [online] Available at: https://www.britannica.com/topic/carbon- [Accessed 19 June 2022].
Amadeo, K. (2022). How a Carbon Tax Can Solve Climate Change. [online] The Balance. Available at: https://www.thebalance.com/carbon-tax-definition-how-it-works-4158043#citation-25 [Accessed 19 Jun. 2022].
Andreas (2020). 27 Main Pros & Cons Of Carbon Taxes. [online] E&C. Available at: https://environmental-conscience.com/carbon-tax-pros-cons-alternatives/ [Accessed 21 Jun. 2022].
