Carbon tax

Carbon tax

Overview
A carbon tax is an environmental tax levied on the carbon
Carbon
Carbon is the chemical element with symbol C and atomic number 6. As a member of group 14 on the periodic table, it is nonmetallic and tetravalent—making four electrons available to form covalent chemical bonds...

 content of fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...

s. It is a form of carbon pricing
Carbon pricing
Carbon pricing is the generic term for placing a price on carbon through either subsidies, a carbon tax, or an emissions trading system....

. Carbon
Carbon
Carbon is the chemical element with symbol C and atomic number 6. As a member of group 14 on the periodic table, it is nonmetallic and tetravalent—making four electrons available to form covalent chemical bonds...

 is present in every hydrocarbon fuel (coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...

, petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

, and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

) and is released as carbon dioxide
Carbon dioxide
Carbon dioxide is a naturally occurring chemical compound composed of two oxygen atoms covalently bonded to a single carbon atom...

  when they are burnt. In contrast, non-combustion
Combustion
Combustion or burning is the sequence of exothermic chemical reactions between a fuel and an oxidant accompanied by the production of heat and conversion of chemical species. The release of heat can result in the production of light in the form of either glowing or a flame...

 energy sources—wind
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....

, sunlight, hydropower
Hydropower
Hydropower, hydraulic power, hydrokinetic power or water power is power that is derived from the force or energy of falling water, which may be harnessed for useful purposes. Since ancient times, hydropower has been used for irrigation and the operation of various mechanical devices, such as...

, and nuclear
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...

—do not convert hydrocarbon
Hydrocarbon
In organic chemistry, a hydrocarbon is an organic compound consisting entirely of hydrogen and carbon. Hydrocarbons from which one hydrogen atom has been removed are functional groups, called hydrocarbyls....

s to . is a heat-trapping "greenhouse" gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...

. Scientists have pointed to the potential effects on the climate system of releasing GHGs into the atmosphere (see scientific opinion on global warming).
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Encyclopedia
A carbon tax is an environmental tax levied on the carbon
Carbon
Carbon is the chemical element with symbol C and atomic number 6. As a member of group 14 on the periodic table, it is nonmetallic and tetravalent—making four electrons available to form covalent chemical bonds...

 content of fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...

s. It is a form of carbon pricing
Carbon pricing
Carbon pricing is the generic term for placing a price on carbon through either subsidies, a carbon tax, or an emissions trading system....

. Carbon
Carbon
Carbon is the chemical element with symbol C and atomic number 6. As a member of group 14 on the periodic table, it is nonmetallic and tetravalent—making four electrons available to form covalent chemical bonds...

 is present in every hydrocarbon fuel (coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...

, petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

, and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

) and is released as carbon dioxide
Carbon dioxide
Carbon dioxide is a naturally occurring chemical compound composed of two oxygen atoms covalently bonded to a single carbon atom...

  when they are burnt. In contrast, non-combustion
Combustion
Combustion or burning is the sequence of exothermic chemical reactions between a fuel and an oxidant accompanied by the production of heat and conversion of chemical species. The release of heat can result in the production of light in the form of either glowing or a flame...

 energy sources—wind
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....

, sunlight, hydropower
Hydropower
Hydropower, hydraulic power, hydrokinetic power or water power is power that is derived from the force or energy of falling water, which may be harnessed for useful purposes. Since ancient times, hydropower has been used for irrigation and the operation of various mechanical devices, such as...

, and nuclear
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...

—do not convert hydrocarbon
Hydrocarbon
In organic chemistry, a hydrocarbon is an organic compound consisting entirely of hydrogen and carbon. Hydrocarbons from which one hydrogen atom has been removed are functional groups, called hydrocarbyls....

s to . is a heat-trapping "greenhouse" gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...

. Scientists have pointed to the potential effects on the climate system of releasing GHGs into the atmosphere (see scientific opinion on global warming). Since GHG emissions caused by the combustion of fossil fuel
Fossil fuel
Fossil fuels are fuels formed by natural processes such as anaerobic decomposition of buried dead organisms. The age of the organisms and their resulting fossil fuels is typically millions of years, and sometimes exceeds 650 million years...

s are closely related to the carbon content of the respective fuels, a tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel.

Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions. From an economic perspective, carbon taxes are a type of Pigovian tax
Pigovian tax
A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity...

. They help to address the problem of emitters of greenhouse gases not facing the full (social
Social cost
Social cost, in economics, is generally defined in opposition to "private cost". In economics, theorists model individual decision-making as measurement of costs and benefits...

) costs of their actions. Carbon taxes are a regressive tax
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

, in that they disproportionately affect low-income groups. The regressive nature of carbon taxes can be addressed by using tax revenues to favour low-income groups.

A number of countries have implemented carbon taxes or energy taxes that are related to carbon content. Most environmentally related taxes with implications for greenhouse gas emissions in OECD countries are levied on energy products and motor vehicle
Motor vehicle
A motor vehicle or road vehicle is a self-propelled wheeled vehicle that does not operate on rails, such as trains or trolleys. The vehicle propulsion is provided by an engine or motor, usually by an internal combustion engine, or an electric motor, or some combination of the two, such as hybrid...

s, rather than on emissions directly.

Opposition to increased environmental regulation such as carbon taxes often centres on concerns that firms might relocate and/or people might lose their jobs. It has been argued, however, that carbon taxes are more efficient than direct regulation and may even lead to higher employment (see footnotes). Many large users of carbon resources in electricity generation, such as the USA, Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...

 and China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

, are resisting carbon taxation.


CO2 and global warming


Carbon dioxide is one of several heat-trapping greenhouse gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...

es (GHGs) emitted by humans (anthropogenic GHGs). The scientific consensus
Scientific opinion on climate change
The predominant scientific opinion on climate change is that the Earth is in an ongoing phase of global warming primarily caused by an enhanced greenhouse effect due to the anthropogenic release of carbon dioxide and other greenhouse gases...

 is that human-induced greenhouse gas emissions are the primary cause of global warming, and that carbon dioxide is the most important of the anthropogenic GHGs. Worldwide, 27 billion tonnes of carbon dioxide are produced by human activity annually. The physical effect of CO2 in the atmosphere can be measured as a change in the Earth-atmosphere system's energy balance – the radiative forcing
Radiative forcing
In climate science, radiative forcing is generally defined as the change in net irradiance between different layers of the atmosphere. Typically, radiative forcing is quantified at the tropopause in units of watts per square meter. A positive forcing tends to warm the system, while a negative...

 of CO2. Carbon taxes are one of the policies available to governments to reduce GHG emissions.

In the Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...

, CO2 emissions are regulated along with other GHGs. Different GHGs have different physical properties: the global warming potential
Global warming potential
Global-warming potential is a relative measure of how much heat a greenhouse gas traps in the atmosphere. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by a similar mass of carbon dioxide. A GWP is calculated over a specific time...

 is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent
Carbon dioxide equivalent
Carbon dioxide equivalent and Equivalent carbon dioxide are two related but distinct measures for describing how much global warming a given type and amount of greenhouse gas may cause, using the functionally equivalent amount or concentration of carbon dioxide as the reference.- Global warming...

.

Economic theory


A carbon tax is an indirect tax
Indirect tax
The term indirect tax has more than one meaning.In the colloquial sense, an indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax...

—a tax on a transaction—as opposed to a direct tax
Direct tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...

, which taxes income. A carbon tax is also called a price instrument, since it sets a price for carbon dioxide emissions. In economic theory, pollution is considered a negative externality, a negative effect on a party not directly involved in a transaction, which results in a market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...

. To confront parties with the issue, the economist Arthur Pigou proposed taxing the goods (in this case hydrocarbon fuels) which were the source of the negative externality (carbon dioxide) so as to accurately reflect the cost of the goods' production to society, thereby internalizing the costs associated with the goods' production. A tax on a negative externality is called a Pigovian tax
Pigovian tax
A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity...

, and should equal the marginal
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...

 damage costs.

Within Pigou's framework, the changes involved are marginal, and the size of the externality is assumed to be small enough not to distort the rest of the economy. According to the scientific consensus, the impact of climate change may result in catastrophe and non-marginal changes. "Non-marginal" means that the impact could significantly reduce the growth rate in income and welfare. The amount of resources that should be devoted to avoiding climate change impacts
Avoiding Dangerous Climate Change
The related terms "avoiding dangerous climate change" and "preventing dangerous anthropogenic interference with the climate system" date to 1995 and earlier, in the Second Assesment Report of the International Panel on Climate Change and previous science it cites.In 2002, the United Nations...

 is controversial. Policies designed to reduce carbon emissions could also have a non-marginal impact.

Prices of hydrocarbon fuels are expected to continue increasing as more countries industrialize and add to the demand on fuel supplies.
In addition to creating incentives for energy conservation, a carbon tax would put renewable energy sources such as wind, solar and geothermal on a more competitive footing, stimulating their growth.

Social cost of carbon


The social cost
Social cost
Social cost, in economics, is generally defined in opposition to "private cost". In economics, theorists model individual decision-making as measurement of costs and benefits...

 of carbon (SCC) is the marginal cost
Marginal cost
In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...

 of emitting one extra tonne of carbon (as carbon dioxide) at any point in time. To calculate the SCC, the atmospheric residence time of carbon dioxide must be estimated, along with an estimate of the impacts of climate change. The impact of the extra tonne of carbon dioxide in the atmosphere must then be converted to the equivalent impacts when the tonne of carbon dioxide was emitted. In economics, comparing impacts over time requires a discount rate. This rate determines the weight placed on impacts occurring at different times.

According to economic theory, if SCC estimates were complete and markets perfect, a carbon tax should be set equal to the SCC. Emission permits would also have a value equal to the SCC. In reality, however, markets are not perfect, and SCC estimates are not complete (Yohe et al.., 2007:823).

An amount of CO2 pollution is measured by the weight (mass) of the pollution. Sometimes this is measured directly as the weight of the carbon dioxide molecules. This is called a tonne of carbon dioxide and is abbreviated "tCO2". Alternatively, the pollution's weight can be measured by adding up only the weight of the carbon atoms in the pollution, ignoring the oxygen atoms. This is called a tonne of carbon and is abbreviated "tC". Estimates of the dollar cost of carbon dioxide pollution is given per tonne, either carbon, $X/tC, or carbon dioxide, $X/tCO2. One tC is roughly equivalent to 4 tCO2.

Estimates of the SCC are highly uncertain. Yohe et al. (2007:813) summarized the literature on SCC estimates: peer-reviewed
Peer review
Peer review is a process of self-regulation by a profession or a process of evaluation involving qualified individuals within the relevant field. Peer review methods are employed to maintain standards, improve performance and provide credibility...

 estimates of the SCC for 2005 had an average value of $43/tC with a standard deviation
Standard deviation
Standard deviation is a widely used measure of variability or diversity used in statistics and probability theory. It shows how much variation or "dispersion" there is from the average...

 of $83/tC. The wide range of estimates is explained mostly by underlying uncertainties in the science of climate change (e.g., the climate sensitivity
Climate sensitivity
Climate sensitivity is a measure of how responsive the temperature of the climate system is to a change in the radiative forcing. It is usually expressed as the temperature change associated with a doubling of the concentration of carbon dioxide in Earth's atmosphere.The equilibrium climate...

, which is a measure of the amount of global warming expected for a doubling in the atmospheric concentration of ), different choices of discount rate, different valuations of economic and non-economic impacts, treatment of equity
Equity (economics)
Equity is the concept or idea of fairness in economics, particularly as to taxation or welfare economics. More specifically it may refer to equal life chances regardless of identity, to provide all citizens with a basic minimum of income/goods/services or to increase funds and commitment for...

, and how potential catastrophic impacts are estimated. Other estimates of the SCC spanned at least three orders of magnitude, from less than $1/tC to over $1,500/tC. The true SCC is expected to increase over time. The rate of increase will very likely be 2 to 4% per year.

Carbon leakage


Carbon leakage
Carbon leakage
Carbon leakage occurs when there is an increase in carbon dioxide emissions in one country as a result of an emissions reduction by a second country with a strict climate policy.Carbon leakage may occur for a number of reasons:...

 is the effect that regulation of emissions in one country/sector has on the emissions in other countries/sectors that are not subject to the same regulation. Leakage effects can be both negative (i.e., increasing the effectiveness of reducing overall emissions) and positive (reducing the effectiveness of reducing overall emissions). Negative leakages, which are desirable, are usually referred to as "spill-over".

According to Goldemberg et al.. (1996, p. 28), short-term leakage effects need to be judged against leakage effects in the long-term. A policy that, for example, saw a carbon taxes set only in developed countries might lead to leakage of emissions to developing countries. However, a desirable negative leakage could occur due to a lowering in demands of coal, oil, and gas from the developed countries and thus the world prices. This will lead to developing countries being able to afford more of any hydrocarbon fuel type, thus being able to substitute more oil or gas for coal, in effect lowering their national emissions. In the long-run, however, if the transfer of less polluting technologies is delayed, this substitution by income effects might have no long-term benefit.

Border adjustments, tariffs and bans


A number of policies have been suggested to address concerns over competitive losses due to one country introducing a carbon tax while another country does not. Similar policies have also been suggested in an attempt to induce countries to introduce carbon taxes. Suggested policies include border tax adjustments, trade tariffs and trade bans.

Border tax adjustments would account for emissions attributable to imports from nations without a carbon price. An alternative would be trade bans or tariffs applied to non-taxing countries. It has been argued that such approaches could be disadvantageous to a target country as a trade measure (Gupta et al.., 2007). To date, World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...

 case law has not provided specific rulings on climate-related taxes. The administrative aspects of border tax adjustments has also been discussed.

Other types of taxes



Two other types of taxes that are related to carbon taxes are emissions taxes and energy tax
Energy tax
An energy tax is a tax that increases the price of energy . Arguments in favour of energy taxes have included the pursuit of macroeconomic objectives, e.g., fiscal deficit reduction in the 1990s, as well as environmental benefits, i.e., reduced pollution...

es. An emissions tax on GHG emissions requires individual emitters to pay a fee, charge or tax for every tonne of greenhouse gas released into the atmosphere, while an energy tax is charged directly on the energy commodities.

In terms of mitigating climate change, a carbon tax, which is levied according to the carbon content of fuels, is not a perfect substitute for a tax on CO2 emissions. For example, a carbon tax encourages reduced use of hydrocarbon fuels, but it does not provide an incentive to mitigate or improve mitigation technologies, e.g. carbon capture and storage
Carbon capture and storage
Carbon capture and storage , alternatively referred to as carbon capture and sequestration, is a technology to prevent large quantities of from being released into the atmosphere from the use of fossil fuel in power generation and other industries. It is often regarded as a means of mitigating...

.

Energy taxes increase the price of energy uniformly, regardless of the emissions produced by the energy source (Fisher et al.., 1996, p. 416). An ad valorem
Ad valorem tax
An ad valorem tax is a tax based on the value of real estate or personal property. It is more common than a specific duty, a tax based on the quantity of an item, such as cents per kilogram, regardless of price....

 energy tax is levied according to the energy content of a fuel or the value of an energy product, which may or may not be consistent with the emitted amounts of green house gases and their respective global warming potential
Global warming potential
Global-warming potential is a relative measure of how much heat a greenhouse gas traps in the atmosphere. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by a similar mass of carbon dioxide. A GWP is calculated over a specific time...

s. Studies indicate that to reduce emissions by a certain amount, ad valorem energy taxes would be more costly than carbon taxes. However, although CO2 emissions are an externality, using energy services may result in other negative externalities, e.g., air pollution. If these other externalities are accounted for, an energy tax may be more efficient than a carbon tax alone.

Petroleum (motor gasoline, diesel, jet fuel)


Many OECD countries have taxed fuel directly for many years for some applications; for example, the UK imposes duty directly on vehicle hydrocarbon oils
Hydrocarbon oil duty
Hydrocarbon oil duty is fuel tax levied on some fuels used by road vehicles in the United Kingdom. Between 1993 and 1999 the Government's Fuel Price Escalator led to significant rises in the cost of fuel which led to fuel tax protests in 2000, 2005 and 2007. In May 2008, UK fuel tax rates were one...

, including petrol and diesel fuel. The duty is adjusted to ensure that the carbon content of different fuels is handled with equivalence.

While a direct tax should send a clear signal to the consumer, its use as an efficient mechanism to influence consumers' fuel use has been challenged in some areas:
  • There may be delays of a decade or more as inefficient vehicles are replaced by newer models and the older models filter through the 'fleet'.
  • There may be political reasons that deter policy makers from imposing a new range of charges on their electorate.
  • There is some evidence that consumers' decisions on fuel economy are not entirely aligned to the price of fuel. In turn, this can deter manufacturers from producing vehicles that they judge have lower sales potential. Other efforts, such as imposing efficiency standards on manufacturers, or changing the income tax rules on taxable benefits, may be at least as significant.
  • In many countries fuel is already taxed to influence transport behavior and to raise other public revenues. Historically, they have used these fuel taxes as a source of general revenue, as their experience has been that the price elasticity of fuel is low, thus increasing fuel taxation has only slightly impacted on their economies. However, in these circumstances the policy behind a carbon tax may be unclear.


Some also note that a suitably priced tax on vehicle fuel may also counterbalance the "rebound effect
Rebound effect (conservation)
In conservation and energy economics, the rebound effect refers to the behavioral or other systemic responses to the introduction of new technologies that increase the efficiency of resource use. These responses tend to offset the beneficial effects of the new technology or other measures taken...

" that has been observed when vehicle fuel consumption has improved through the imposition of efficiency standards. Rather than reduce their overall consumption of fuel, consumers have been seen to make additional journeys or purchase heavier and more powerful vehicles.

Calculation


A carbon tax that compensates for the SCC varies by fuel source. The carbon dioxide production of the fuel source per unit mass or volume is multiplied by the SCC to obtain the tax. Based on the mean peer reviewed value ($43/tC or $12/tCO2), the table below estimates the tax:
Fuel CO2 Emissions
(mass of CO2 produced)
Tax
(per fuel unit)
CO2 Emissions
(mass of CO2 produced)
Tax per kWh of electricity
gasoline 19.6 lb/USgal $0.11/USgal ($0.028/L) n/a n/a
diesel fuel 22.4 lb/USgal $0.12/USgal ($0.032/L) n/a n/a
jet fuel 22.1 lb/USgal $0.12/USgal ($0.032/L) n/a n/a
natural gas 0.1206 lb/cuft $0.00066/cu ft ($0.023/m3) 117 lb/MBTU (181 g/kWh) $0.0066
coal(lignite) 2791 lb/ton (1.396 kg/kg) n/a 215 lb/MBTU (333 g/kWh) $0.0121
coal(subbutuminous) 3715 lb/ton (1.858 kg/kg) n/a 213 lb/MBTU (330 g/kWh) $0.0119
coal(butuminous) 4931 lb/ton (2.466 kg/kg) n/a 205 lb/MBTU (317 g/kWh) $0.0115
coal(anthracite) 5685 lb/ton (2.843 kg/kg) n/a 227 lb/MBTU (351 g/kWh) $0.0127


Note that the tax per kWh of electricity depends on the thermal efficiency
Thermal efficiency
In thermodynamics, the thermal efficiency is a dimensionless performance measure of a device that uses thermal energy, such as an internal combustion engine, a boiler, a furnace, or a refrigerator for example.-Overview:...

 of the generating power plant, which varies from power plant to power plant. The table follows the American Physical Society
American Physical Society
The American Physical Society is the world's second largest organization of physicists, behind the Deutsche Physikalische Gesellschaft. The Society publishes more than a dozen scientific journals, including the world renowned Physical Review and Physical Review Letters, and organizes more than 20...

 (APS) estimate of 10.3 BTU/Wh (33%). The APS notes that "It is expected that future plants, especially those based on gas turbine systems, often will have higher efficiencies, in some cases exceeding 50%." A theoretical conversion rate of 100% is 3.412 BTU/Wh. A more practical limit for thermal power plants is Carnot's theorem.

Implementation


Both energy and carbon taxes have been implemented in responses to commitments under the United Nations Framework Convention on Climate Change
United Nations Framework Convention on Climate Change
The United Nations Framework Convention on Climate Change is an international environmental treaty produced at the United Nations Conference on Environment and Development , informally known as the Earth Summit, held in Rio de Janeiro from June 3 to 14, 1992...

. In most cases where an energy
Energy tax
An energy tax is a tax that increases the price of energy . Arguments in favour of energy taxes have included the pursuit of macroeconomic objectives, e.g., fiscal deficit reduction in the 1990s, as well as environmental benefits, i.e., reduced pollution...

 or carbon tax is implemented, the tax is implemented in combination with various forms of exemptions.

South Africa



A tax on emissions has been proposed for South Africa. Announced by Finance Minister Pravin Gordhan
Pravin Gordhan
Pravin Jamnadas Gordhan is a South African political figure, serving as Minister of Finance since May 2009. He was previously the Commissioner of the South African Revenue Service from 1999 to 2009. From 1991 and 1994, he chaired the Convention for a Democratic South Africa...

, the tax will be implemented starting September 1, 2010 on new motor vehicles. This tax will apply at the time of sale, and will be related to the amount of CO2 emitted by the vehicle. 75 South African Rand will be added to the price for every gram of CO2 per kilometer the vehicle emits over 120 g/km. The tax will apply to passenger cars first and eventually to commercial vehicles. Bakkies (pickup trucks) will be taxed because they are often used as passenger vehicles: this has caused an uproar for fear of impacts on industry.

David Powels of the National Association of Automobile Manufacturers of South Africa (NAAMSA), opposes this taxation on light commercial vehicles. The tax could increase the cost of new vehicles by 2.5% and cause a decrease in total automobile sales: in addition, Powels questions the ability to accurately predict CO2 emissions based on engine capacity. NAAMSA acknowledges the ability of carbon taxes to change consumer behavior for the betterment of the environment, but argues that this tax is not transparent enough for consumers because the taxation occurs at the time of automobile production. Powels says the tax is discriminatory because it targets new vehicles, and that the government should focus on introducing "green fuel" to South Africa.

The goal of the carbon tax is to put South Africa on a "sustainable path". South Africa has produced Long Term Mitigation Scenarios (LTMS) to address climate policy issues that consider variables such as technology, investment, and policy (including carbon taxes) and to clarify South Africa's position for potential UNFCC negotiations.

China


The Chinese Government Ministry of Finance has proposed to introduce a carbon tax from 2012 or 2013, based on carbon dioxide output from hydrocarbon fuel sources such as oil and coal.

India


On July 1, 2010 India introduced a nationwide carbon tax of 50 rupees per metric tonne ($1.07/t) of coal both produced and imported into India.
In India coal is used to power more than half of the country’s electricity generation.

India's total coal production is estimated to reach 571.87 million tons in the year ending March, 2010 and is expected to import around 100 million tons. The carbon tax expects to raise 25 billion rupees ($535 million) for the financial year 2010–2011. According to Finance Minister Pranab Mukherjee, the clean energy tax will help to finance a National Clean Energy Fund (NCEF). Industry bodies have not favored the levy and fear that the resultant higher price of coal could trigger inflation.

While many remain apprehensive, a carbon tax is a step towards helping India meet their voluntary target to reduce the amount of carbon dioxide released per unit of gross domestic product by 25% from 2005 levels by 2020. Environment Minister Jairam Ramesh told reporters in June 2010 that a domestic tax should come before a global carbon tax, and India has imposed one while others debate the issue.

Japan


Currently Japan does not have any carbon tax regulations. In December 2009, nine industry groupings opposed the carbon tax at the opening day of the COP-15 Copenhagen climate conference
2009 United Nations Climate Change Conference
The 2009 United Nations Climate Change Conference, commonly known as the Copenhagen Summit, was held at the Bella Center in Copenhagen, Denmark, between 7 December and 18 December. The conference included the 15th Conference of the Parties to the United Nations Framework Convention on Climate...

 stating that "Japan should not consider a carbon tax as it would damage the economy which is already among the world's most energy efficient". The industry groupings represented the oil, cement, paper, chemical, gas, electric power, auto manufacturing and electronics, and information technology sectors. The sectors state that "the government has neither studied nor explained thoroughly enough why such a carbon tax is needed, how effective and fair it is and how the payments are to be used."

In 2005, an environmental tax proposed by Japanese authorities was also delayed due to major opposition from the Petroleum Association of Japan (PAJ), other industries and consumers. The delay was "to avoid putting too much economic burden on end-users as they were already paying heavy taxes on hydrocarbon fuels amid high oil prices." The tax that was to be implemented would be 2,400 yen ($20.85 in 2005 dollars) per tonne of carbon dioxide emitted from fuels. Tax on coal would be about 1.58 yen per kilogram and that on gasoline 1.52 yen per litre (4.3 cents per gallon in 2005 dollars). Officials estimated that the tax would generate income of 37 billion yen a year for the government and result in a payment of 2,100 yen per year for an average household.

South Korea


On August 22, 2008 The Chong Wa Dae, also known as the Blue house – the executive office and official residence of the South Korean head of state, confirmed a list of 40 new administrative strategy agenda, which included substitution of a carbon tax with the current transportation tax. Most revenues of the tax amounting to an annual $11 trillion won ($10.4 billion) will be financed toward the “Low Carbon, Green Growth” move, which was announced in President Lee Myung-bak’s speech marking the nation’s 63rd Liberation day the week before the announcement. A carbon tax is imposed on emissions of greenhouse gases including carbon dioxide. The direct taxation system is now applied to several European countries, such as Sweden, the Netherlands and Norway, as well as several states in North America. The temporary transportation tax, one of the major objective taxes in the country, is slated to end in 2009. About 80 percent of its yield is used in transportation-related work like road construction. Additional taxation amendment could follow with a "tax on emissions" bottom line, in possible implementations of tax discrimination according to a vehicles' size and a carbon tax on the currently tax-free thermal power plants. Taxation on emissions is inevitable in that low carbon policies take substantial budget, the government says.

In February 2010, a deputy finance minister Yoon Young-sun confirmed that South Korea is considering a carbon tax to help reduce emissions 4% from 2005 levels by 2020. This would be in conjunction with a cap-and-trade
Emissions trading
Emissions trading is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants....

 program to be implemented later this year. With a tax rate of 31,828 won (25 Euros) per ton of CO2, the South Korean government would collect 9.1 trillion won ($7.9 billion) in tax revenue based on 2007 emissions. Income from the carbon tax would be used to reduce corporate and income taxes. On July 22, 2010 Chairman Sohn Kyung-shik of the Korea Chamber of Commerce and Industry asked for the South Korean government to delay the implementation of the carbon tax: "If the government applies much stricter guidelines over carbon emissions, then companies might be burdened."

On July 13, 2010 South Korea’s government announced plans to more than double its financing for green research and development projects to 3.5 trillion won ($2.9/£1.9bn) by 2013. The finance ministry decided that the new investment will be put into a new dedicated green fund operated by the state-run Korea Finance Corporation, for distribution to private sector projects. The government said that the fund forms part of a huge low-carbon investment drive that will see it invest a total of 107.4 trillion won, or two percent of the country’s annual gross domestic product, on green projects between 2009 and 2013.

However, the government signaled that in addition to setting aside state funds, it will ask private companies to contribute 2.4 trillion won to the fund. It added that spending from the fund will be directed mainly toward business involved in greenhouse gas emissions reduction and promoting energy efficiency. In addition, the government intends to expand its system of tax breaks to cover new technologies in solar, wind and thermal power, low-emission vehicles, rechargeable batteries and next generation nuclear reactors.

The government also set a voluntary target last year (2009) to reduce 2020 emissions by four percent on 2005 levels by 2020, and is expected to soon announce plans for carbon trading scheme to begin in 2012.

Taiwan


In October 2009 vice finance minister Chang Sheng-ho announced that Taiwan was planning to adopt a carbon tax in 2011.
However, Premier Wu Den-yih
Wu Den-yih
Wu Den-yih is a Taiwanese politician of the Kuomintang Party, and the current Premier of the Republic of China.-Personal:Wu was born in Tsaotun, Nantou County, Taiwan...

 and legislators stated that the carbon taxes would increase public suffering from the recession and that the government should not levy the new taxes until Taiwan’s economy has recovered. He opposed the carbon tax. Many Taiwanese citizens are opposed to tax increases as well. However, Chung-Hua Institution for Economic Research (CIER), the think-tank which was commissioned by the government to advise on its plan to overhaul the nation's taxes, had recommended a levy of NT$2,000 (US$61.8, £37.6) on each tonne of CO2 emissions. CIER estimated that Taiwan could raise NT$164.7bn (US$5.1bn, £3.1bn) from the energy tax and a further NT$239bn (US$7.3bn, £4.4bn) from the carbon levy on an annual basis by 2021. If Taiwan does pass the carbon tax policy, Taiwan would become the first Asian country with taxation on carbon emissions. Due to the amount of revenues from such a comparatively high carbon tax, the government is planning to subsidize low income families and public transportation by using the revenues from carbon taxes.

Australia


Both the incumbent Howard
John Howard
John Winston Howard AC, SSI, was the 25th Prime Minister of Australia, from 11 March 1996 to 3 December 2007. He was the second-longest serving Australian Prime Minister after Sir Robert Menzies....

 Coalition
Coalition (Australia)
The Coalition in Australian politics refers to a group of centre-right parties that has existed in the form of a coalition agreement since 1922...

 government and the Rudd
Kevin Rudd
Kevin Michael Rudd is an Australian politician who was the 26th Prime Minister of Australia from 2007 to 2010. He has been Minister for Foreign Affairs since 2010...

 Labor
Australian Labor Party
The Australian Labor Party is an Australian political party. It has been the governing party of the Commonwealth of Australia since the 2007 federal election. Julia Gillard is the party's federal parliamentary leader and Prime Minister of Australia...

 opposition promised to implement an emissions trading scheme (ETS) before the 2007 federal election. Labor won the election, with the new government proceeding to implement an ETS. The government introduced the Carbon Pollution Reduction Scheme
Carbon Pollution Reduction Scheme
The Carbon Pollution Reduction Scheme was a proposed cap-and-trade system of emissions trading for anthropogenic greenhouse gases, due to be introduced in Australia in 2010 by the Rudd government, as part of its climate change policy. It marked a major change in the energy policy of Australia...

, which the Liberals
Liberal Party of Australia
The Liberal Party of Australia is an Australian political party.Founded a year after the 1943 federal election to replace the United Australia Party, the centre-right Liberal Party typically competes with the centre-left Australian Labor Party for political office...

 supported with Malcolm Turnbull
Malcolm Turnbull
Malcolm Bligh Turnbull is an Australian politician. He has been a member of the Australian House of Representatives since 2004, and was Leader of the Opposition and parliamentary leader of the Liberal Party from 16 September 2008 to 1 December 2009.Turnbull has represented the Division...

 as leader. Tony Abbott
Tony Abbott
Anthony John "Tony" Abbott is the Leader of the Opposition in the Australian House of Representatives and federal leader of the centre-right Liberal Party of Australia. Abbott has represented the seat of Warringah since the 1994 by-election...

 questioned an ETS, saying the best way to reduce emissions is with a "simple tax". Shortly before the carbon vote, Abbott defeated Turnbull in a leadership challenge, and from there on the Liberals opposed the ETS. This left the government unable to secure passage of the bill and it was subsequently withdrawn.

Julia Gillard
Julia Gillard
Julia Eileen Gillard is the 27th and current Prime Minister of Australia, in office since June 2010.Gillard was born in Barry, Vale of Glamorgan, Wales and migrated with her family to Adelaide, Australia in 1966, attending Mitcham Demonstration School and Unley High School. In 1982 Gillard moved...

 defeated Rudd in a leadership challenge and from there on said no carbon tax would be introduced under a government she led when taking the government to the 2010 election. In the first hung parliament
Hung parliament
In a two-party parliamentary system of government, a hung parliament occurs when neither major political party has an absolute majority of seats in the parliament . It is also less commonly known as a balanced parliament or a legislature under no overall control...

 result in 70 years, the government required the support of crossbenchers including the Greens
Australian Greens
The Australian Greens, commonly known as The Greens, is an Australian green political party.The party was formed in 1992; however, its origins can be traced to the early environmental movement in Australia and the formation of the United Tasmania Group , the first Green party in the world, which...

. One requirement for Green support was a carbon tax, which Gillard proceeded with in forming a minority government. A fixed-price carbon tax would proceed to a floating-price ETS within a few years under the plans. The government proposed the Clean Energy Bill
Clean Energy Bill, 2011
The Clean Energy Bill 2011 is a package of legislation that will establish a proposed Australian emissions trading scheme designed to reduce carbon dioxide emissions and limit global warming.-History:...

 in February 2011, which the opposition claimed to be a broken election promise. The Liberal Party vowed to overturn the bill if it is elected.

The bill was passed by the Lower House
Australian House of Representatives
The House of Representatives is one of the two houses of the Parliament of Australia; it is the lower house; the upper house is the Senate. Members of Parliament serve for terms of approximately three years....

 in October 2011 and the Upper House
Australian Senate
The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. Senators are popularly elected under a system of proportional representation. Senators are elected for a term that is usually six years; after a double dissolution, however,...

 in November 2011.

New Zealand


In 2005, the Fifth Labour Government proposed a carbon tax in order to meet obligations under the Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...

. The proposal would have set an emissions price of NZ$15 per tonne of CO2-equivalent. The planned tax was scheduled to take effect from April 2007, and applied across most economic sectors though with an exemption for methane
Methane
Methane is a chemical compound with the chemical formula . It is the simplest alkane, the principal component of natural gas, and probably the most abundant organic compound on earth. The relative abundance of methane makes it an attractive fuel...

 emissions from farming and provisions for special exemptions from carbon intensive businesses if they adopted world's-best-practice standards of emissions.

After the 2005 election
New Zealand general election, 2005
The 2005 New Zealand general election held on 17 September 2005 determined the composition of the 48th New Zealand Parliament. No party won a majority in the unicameral House of Representatives, but the Labour Party of Prime Minister Helen Clark secured two more seats than nearest rival, the...

, the minor parties supporting the Fifth Labour Government opposed the proposed tax, and it was abandoned in December 2005. In 2008, the New Zealand Emissions Trading Scheme
New Zealand Emissions Trading Scheme
The New Zealand Emissions Trading Scheme is a national all-sectors all-greenhouse gases all-free allocation uncapped emissions trading scheme...

 was enacted via the Climate Change Response (Emissions Trading) Amendment Act 2008
Climate Change Response (Emissions Trading) Amendment Act 2008
The Climate Change Response Amendment Act 2008 was a statute enacted in September 2008 by the Fifth Labour Government of New Zealand that established the first version of the New Zealand Emissions Trading Scheme, a national all-sectors all-greenhouse gases uncapped emissions trading...

.

Europe


In Europe, a number of countries have imposed energy taxes or energy taxes based partly on carbon content. These include Denmark, Finland, Germany, Ireland, Italy, the Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK. None of these countries has been able to introduce a uniform carbon tax for fuels in all sectors. For a review of Europe's experience with carbon taxation see Andersen (2010).

European Union


During the 1990s, a carbon/energy tax was proposed at the EU level but failed due to industrial lobbying.
In 2010, the European Commission considered implementing a pan-European minimum tax on pollution permits purchased under the European Union Greenhouse Gas Emissions Trading System (EU ETS) in which the proposed new tax would be calculated in terms of carbon content rather than volume, so that fuels with high energy concentrations, despite their subsequently high carbon content, will no longer carry the same traditionally low price.
According to the European Commission, the new plan will charge firms a minimum tax per metric tonne of carbon dioxide emissions at a suggested rate of €4 to €30 per tonne of CO2.
Denmark

As of the year 2002, the standard carbon tax rate since 1996 amounts to 100 DKK
Danish krone
The krone is the official currency of the Kingdom of Denmark consisting of Denmark, the Faroe Islands and Greenland. It is subdivided into 100 øre...

 per metric ton of CO2 , equivalent to approximately 13 Euros or 18 US dollars . Net carbon emission tax from fuel combustion can vary depending on the level of pollution each source emits, the tax rate varies between 402 DKK per metric ton of oil to 5.6 DKK per metric ton of natural gas and 0 for non-combustible renewables. The rate for electricity is 1164 DKK per metric ton or 10 øre per kWh, equivalent to .013 Euros or .017 US dollars per kWh. The CO2 tax applies to all energy users, including the industrial sector. But the industrial companies can be taxed differently according to two principles: the process the energy is used for, and whether or not the company has entered into a voluntary agreement to apply energy efficiency measures. Danish policies like this provide incentives for companies to put in place more sustainable practices similar to a cap and trade program on carbon dioxide.

In 1992 Denmark issued a carbon dioxide tax which was about $14 for business and $7 for households, per ton of CO2 . However, Denmark offers a tax refund
Tax refund
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the...

 for energy efficient changes. One of the main goals for the tax is to have people change their habits, because most of the money collected would be put into research for alternative energy resources. Denmark also needs to be behind this by actually showing they are investing and not just collecting money.
Finland

Finland
Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

 was the first country in the 1990s to introduce a CO2 tax, initially with few exemptions for specific fuels or sectors. Since then, however, energy taxation has been changed many times and substantially. These changes were related to the opening of the Nordic electricity market. Other Nordic countries exempted energy-intensive industries, and Finnish industries felt disadvantaged by this. Finland did place a border tax on imported electricity, but this was found to be out of line with EU single market legislation. Changes were then made to the carbon tax to partially exclude energy-intensive firms. This had the effect of increasing the costs of reducing CO2 emissions (p. 16).

Vourc'h and Jimenez (2000, p. 17) stated that arguments based on competitive losses needed to be viewed with caution. For example, they suggested that carbon tax revenues could be used to reduce labour taxes, which would favour the competitiveness of non energy-intensive industries.
France

On September 10, 2009, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 detailed a new carbon tax with a new levy on oil, gas and coal consumption by households and businesses that was supposed to come into effect on January 1, 2010. The new carbon tax would be 17 euros (25 US dollars) per tonne of carbon dioxide (CO2) for households and businesses, which will raise the cost of a liter of unleaded fuel by about four cents (25 US cents per gallon). The total estimated income from the carbon tax would have been between 3 and 4.5 billion euros annually, with 55 percent of profit coming from households and 45 percent coming from businesses. The tax will not apply to electricity as mostly produced by France's network of nuclear reactors.

On December 30, the bill was blocked by the French Constitutional Council. It considered the bill included too many exceptions and said they were unconstitutional. It condemned the exemptions for industries as being unequal and inefficient, pointing out that less than half the whole emissions would have been taxed and saying it was unfair to apply the tax only to fuels and heating, which accounted for a limited part of carbon emissions. Discounts and exceptions would have applied to many aspects of industry and agriculture, including fishing, trucking, and farming. French President Nicolas Sarkozy
Nicolas Sarkozy
Nicolas Sarkozy is the 23rd and current President of the French Republic and ex officio Co-Prince of Andorra. He assumed the office on 16 May 2007 after defeating the Socialist Party candidate Ségolène Royal 10 days earlier....

, despite his vow to "lead the fight to save the human race from global warming", did not support the bill, saying that France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 needed support from the rest of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 before it would try and proceed with a carbon tax.
Republic of Ireland

In 2004, following a policy review, the Irish Government
Irish Government
The Government of Ireland is the cabinet that exercises executive authority in Ireland.-Members of the Government:Membership of the Government is regulated fundamentally by the Constitution of Ireland. The Government is headed by a prime minister called the Taoiseach...

 rejected the introduction of a carbon tax as a policy option. However in 2007 a Fianna Fáil
Fianna Fáil
Fianna Fáil – The Republican Party , more commonly known as Fianna Fáil is a centrist political party in the Republic of Ireland, founded on 23 March 1926. Fianna Fáil's name is traditionally translated into English as Soldiers of Destiny, although a more accurate rendition would be Warriors of Fál...

-Green Party coalition government was formed, and promised to reconsider the matter. In the 2010 budget the country's first carbon tax was introduced. The new tax was levied at €15 per tonne of CO2 emissions (approx. US$20 per tonne).

The carbon tax applies to kerosene, marked gas oil, liquid petroleum gas, fuel oil, and natural gas. The Natural Gas Carbon Tax does not apply to electricity because the cost of electricity is already included in pricing under the Single Electricity Market (SEM). Similarly, natural gas users are exempt from the tax if they can prove they are using the gas to "generate electricity, for chemical reduction, or for electrolytic or metallurgical processes"."A partial relief from the tax is granted for natural gas delivered for use in an installation that is covered by a greenhouse gas emissions permit issued by the Environmental Protection Agency. The natural gas concerned will be taxed at the minimum rate specified in the EU Energy Tax Directive, which is €0.54 per megawatt hour at gross calorific value." Pure biofuels are also exempt.
The Economic and Social Research Institute has estimated the tax will cost between about €2 and €3 a week per household, or about €156 per year: a survey from the Central Statistics Office reports that Ireland's average disposable income was almost €48,000 in 2007.

There is concern that the carbon tax may disproportionately affect elderly persons and low-income households. One group, Active Retirement Ireland, proposes that "an extra allowance of €4 per week be made to people in receipt of the State pension for the 30 weeks currently covered by the fuel allowance," they suggest that "home heating oil be added to the categories covered under the Household Benefit Package, which is available to older people in receipt of the State pension".

The tax is paid by companies to the Collector General. Fraudulent violation is punishable under section 1078 of the Taxes Consolidation Act 1997 which allows for a jail sentence of up to 5 years or a fine of no more than €126,970. Failure to comply with the tax violates section 73 of the Finance Act of 2010.
Payment for the first accounting period was due in July 2010.
Netherlands

The Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...

 initiated a carbon tax in 1990. However, in 1992 it was replaced with a 50/50 carbon/energy tax called the Environmental Tax on Fuels, the taxes are assessed partly on carbon content and partly on energy content. The charge was transformed into a tax and became part of general tax revenues. As such, it fell under the administration of the Ministry of Finance. The general fuel tax is collected on all hydrocarbon fuels. Fuels used as raw materials are not subject to the tax. Tax rates are based 50/50 on the energy and carbon contents of fuels. In 1996 The Regulatory Tax on Energy was another 50/50 carbon/energy tax was also implemented. The Environmental tax and the regulatory tax are 5.16 Dutch guilder, or NLG, (~$3.13) or per metric ton of CO2 and 27.00 NLG (~16.40) per metric ton CO2 respectively. Under the general fuel tax, electricity is not taxed, though fuels used to produce electricity are taxable. Energy-intensive industries used to benefit from preferential rates under this tax but the benefit was cancelled in January 1997. Also, since 1997 nuclear power has been taxed under the general fuel tax at the rate of NLG 31.95 per gram of uranium-235.38 The European Environment Agency put out an Executive Summary stating "Although the 5th Environmental Action Programme of the EU in 1992 recommended the greater use of economic instruments such as environmental taxes, there has been little progress in their use since then at the EU level." However, "at Member State level, there has been a continuing increase in the use of environmental taxes over the last decade, which has accelerated in the last 5–6 year...Countries including the Netherlands and the United Kingdom."

More recently, in 2007, The Netherlands introduced a Waste Fund that is funded by a carbon-based packaging tax. This tax encourages producers to create packaging that is recyclable and was implemented to help reach the goals of recycling 65% of used packaging by 2012. The company Nedvang (Nederland van afval naar grondstof or The Netherlands from waste to value), which was set up in 2005, is the largest organization supporting producers and importers of packaged goods reaching individual company goals under the Dutch packaging decree. This decree was signed in 2005 and states that producers and importers of packaged goods are responsible for the collection and recycling of that waste, and that at least 65% of that wast has to be recycled. Producers and importers can choose to reach the goals on an individual basis or by joining an organization like Nedvang.

The Carbon-Based Tax on Packaging consists of taxing:
  • Glass: € 71,80/ tonne (~$ 91.99/ tonne)
  • Aluminum (including Alloys): € 950,60/ tonne (~$ 1,219.00/ tonne)
  • Ferrous metals: € 158,50/ tonne (~$ 203.09/ tonne)
  • Plastics: € 470,50/ tonne (~$ 602.75/ tonne)
  • Paper/Cardboard: € 79,50/ tonne (~$ 101.86/ tonne)
  • Wood: € 21,00/ tonne (~$ 26.90/ tonne)

Sweden

In January 1991, Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 enacted a CO2 tax of 0.25 SEK/kg ($100 or EUR 72 per ton) on the use of oil, coal, natural gas, liquefied petroleum gas, petrol, and aviation fuel used in domestic travel. Industrial users paid half the rate (between 1993 and 1997, 25% of the rate), and certain high-energy industries such as commercial horticulture, mining, manufacturing and the pulp and paper industry were fully exempted from these new taxes.

In 1997 the rate was raised to 0.365 SEK/kg ($150 per ton) of CO2. In 2007, the tax was SEK 930 (EUR 101) per ton of CO2. The full tax is paid in transport, space heating, and non-combined heat and power generation. Owing to the many exemptions, oil accounts for 96% of the revenues from the tax, although it produces less than three-quarters of CO2 from fuel combustion.

The tax is credited with spurring a significant move from hydrocarbon fuels to biomass. As Swedish Society for Nature Conservation climate change expert Emma Lindberg said, “It was the one major reason that steered society towards climate-friendly solutions. It made polluting more expensive and focused people on finding energy-efficient solutions.”

“It increased the use of bioenergy,” said University of Lund Professor Thomas Johansson, former director of energy and climate at the UN Development Programme. “It had a major impact in particular on heating. Every city in Sweden uses district heating. Before, coal or oil were used for district heating. Now biomass is used, usually waste from forests and forest industries.”

Economic growth appears to be unaffected. Between 1990 and 2006, Sweden’s economy grew by 44-46 percent (approx 2,8% annually), depending on source.,
United Kingdom

In 1993, the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 government introduced the fuel duty escalator
Fuel Price Escalator
The Fuel Price Escalator was the practice of automatically increasing hydrocarbon oil duty in the United Kingdom ahead of inflation. The escalator was introduced as a measure to stem the increase in pollution from road transport and cut the need for new road building which was then a politically...

 (FDE), an environmental tax on retail petroleum products. The tax was explicitly designed to reduce carbon dioxide emissions in the transport sector. Since carbon is in fixed ratio to the quantity of fuel, the FDE roughly approximated a carbon tax. The transport lobby in the UK was extremely critical of the FDE. The FDE, which was the UK's only "real" carbon tax, failed because of the political criticism it provoked, and the automatic increase of the FDE was cancelled in 1999. Increases in fuel tax have since been discretionary.

The politically damaging fuel protests
UK fuel protests
The fuel protests in the United Kingdom were a series of campaigns held in the United Kingdom over the cost of petrol and diesel for road vehicle use. There have been three notable campaigns amongst many other protests in the 21st century. The first protest in 2000 was primarily led by lorry...

 in 2000 contributed to the government decision to reduce the real rates of fuel tax. At the time, tax and duty represented more than 75% of the total pump price. In money terms, the past increments of the FDE remain in force, but in real terms, increments have been reduced by the rate of inflation. In 2006, tax represented about ⅔ of the pump price.

In addition, the UK's Climate Change Levy
Climate Change Levy
The Climate Change Levy is a tax on energy delivered to non-domestic users in the United Kingdom. Its aim is to provide an incentive to increase energy efficiency and to reduce carbon emissions, however there have been ongoing calls to replace it with a proper carbon tax.-Scope and...

 was introduced in 2001.

Norway


Norway introduced a CO2 tax on hydrocarbon fuels in 1991. The tax started at a high rate of US$51 per metric ton of CO2 on gasoline, with an average tax of US$21 per metric ton The tax was also applied to diesel, mineral oil, oil and gas used in North Sea
extraction activities. The International Energy Agency's (IEA) 2001 Review of Norway in the Energy Policies of IEA Countries stated that "since 1991 a carbon dioxide tax has applied in addition to excise taxes
on fuel." It is among the highest carbon taxes in the OECD. Carbon taxation is also applied to the production of oil and gas offshore. The IEA estimates for revenue generated by the CO2 tax in 2004 were 7,808 million NOK (about US$1.3 billion in 2010 dollars).

According to IEA 2005 Review of Norway, Norway's CO2 tax is its most important climate policy instrument, and covers about 64% of Norwegian CO2 emissions and 52% of total GHG emissions. Some industry sectors have been granted exemptions from the tax to preserve their competitive position. Various studies in the 1990s, and an economic analysis by Statistics Norway, have estimated the effect of the CO2 tax to be a reduction of 2.5–11% of Norwegian emissions under a business-as-usual approach (i.e., the predicted emissions that would have occurred without the tax). However, even with the carbon tax, Norway's per capita emissions rose by 15% between 1991 (when the carbon tax was introduced) and 2008.

Switzerland


In January 2008, Switzerland
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

 implemented a CO2 incentive tax on all hydrocarbon fuels, such as coal, oil and natural gas, unless they are used for energy. Gasoline and diesel fuels are not affected by the CO2 tax. The tax is collected by the Swiss Federal Customs Administration. It is an incentive tax because it is designed to promote the economic use of hydrocarbon fuels. The tax amounts to CHF
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...

 12 per metric tonne CO2 (US $11.41 per metric tonne CO2), which is the equivalent of CHF 0.03 per litre of heating oil (US $0.0076 per gallon) and CHF 0.025 per m3 of natural gas (US $0.024 per m3). This tax comes from Switzerland's 1999 Federal Law on the Reduction of CO2 (CO2 Law). Although Switzerland prefers to rely on voluntary actions and measures to achieve emissions reductions, the CO2 Law mandated the introduction of a CO2 tax if voluntary measures proved to be insufficient. In 2005 the federal government decided that additional measures were needed to achieve emissions reductions and meet Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...

 commitments of an 8% reduction in greenhouse gas emissions below 1990 levels between 2008 and 2012. In 2007, the CO2 tax was approved by the Swiss Federal Council
Swiss Federal Council
The Federal Council is the seven-member executive council which constitutes the federal government of Switzerland and serves as the Swiss collective head of state....

, coming into effect 2008. In 2010, the highest tax rate will be CHF 36 per metric tonne of CO2 (US $34.20 per metric tonne CO2).

Companies are allowed to exempt themselves from the tax by participating in a Swiss cap-and-trade emissions trading scheme where they voluntarily commit to legally binding targets to reduce their CO2 emissions. Under this scheme, emission allowances are given to companies for free, and each year emission allowances equal to the amount of CO2 emitted must be surrendered by the company. Companies are allowed to sell or trade excess permits. However, should a company fail to surrender the correct amount of allowances, they must pay the CO2 tax retroactively for each tonne of CO2 emitted since the exemption was granted. About 400 companies take part in trading CO2 emission credits under this program. In 2009, for the second year in a row, the companies returned enough credits to the Swiss government to cover their CO2 emissions for the year. The 2009 report shows that companies emitted only about 2.6 million tonnes of CO2, falling well below the total permissible quantity of 3.1 million tonnes. The Swiss carbon market still remains fairly small, with few emissions permits being traded. Swiss domestic law tends to favor the use of a CO2 tax to achieve emissions reductions and this preference for taxes combined with an immature carbon market could partially explain why Switzerland has not yet joined the European Union Emission Trading Scheme
European Union Emission Trading Scheme
The European Union Emissions Trading Scheme also known as the European Union Emissions Trading System, was the first large emissions trading scheme in the world. It was launched in 2005 to combat climate change and is a major pillar of EU climate policy...

 (EU ETS).

The tax is revenue neutral, and its revenues are redistributed proportionally to companies and to the Swiss population. For example, if the population bears 60% of the tax burden, they will receive 60% of the redistribution. For companies, revenues will be redistributed to all companies, except those who chose to exempt themselves from the tax through the cap-and-trade program. The revenue is given to the companies in proportion to the total payroll of their employees and is distributed through an AHV compensation fund (Federal Old Age and Survivors' Insurance) that pays the relevant amount of revenue to the company. The revenues from the tax that were paid by the Swiss population are redistributed equally to all Swiss residents through health insurance companies and a deduction on their insurance premium. In June 2009 the Swiss Parliament decided to allocate about one-third of the revenue from the carbon tax to a 10 year building program for climate-friendly building renovations. This program promotes building renovations, the use of renewable energies, the utilization of waste heat, and building engineering.

As part of the early-redistribution program decided by the Swiss Federal Council in 2009, the tax revenue from 2008, 2009 and 2010 are being distributed in 2010. In 2008 alone, the tax of CHF 12 per tonne of CO2 raised around CHF 220 million (US $209 million) in revenue. As of June 16, 2010, a total of around CHF 360 million (US $342 million) have become available for distribution to the Swiss population and economy. It is estimated that in 2010, at the highest tax rate of CHF 36 per tonne of CO2, the revenue from the tax will be about CHF 630 million (US $598 million). Out of the projected CHF 630 million, CHF 200 million (US $190 million) will be allocated for the building program and the remaining CHF 430 million (US $409 million) will be redistributed in 2010 to the population and the economy. The International Energy Agency
International Energy Agency
The International Energy Agency is a Paris-based autonomous intergovernmental organization established in the framework of the Organisation for Economic Co-operation and Development in 1974 in the wake of the 1973 oil crisis...

 (IEA) commends Switzerland's CO2 tax for its excellent design and notes that the recycling of the tax revenues to all citizens and enterprises is "sound fiscal practice".

Since 2005, transport fuels in Switzerland have been subjected to the Climate Cent Initiative surcharge—a surcharge of CHF 0.015 per litre on gasoline and diesel (US $.0038 per gallon) --which will remain in place until the end of 2012. However, this surcharge can be supplemented with a CO2 tax on transport fuels if emissions reductions are not satisfactory. In their 2007 review, the IEA recommended that Switzerland implement a CO2 tax on transport fuels or increase the Climate Cent surcharge to better balance the high costs of meeting emissions reductions targets across sectors.

Switzerland is currently on track to meet its Kyoto Protocol commitment of an 8% reduction in greenhouse gas emissions below 1990 levels between 2008 and 2012. The combination of the CO2 tax and other voluntary measures by businesses and private individuals is enabling Switzerland to achieve these reduction goals.

Costa Rica



In 1997 Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....

 imposed a 3.5 percent carbon tax on hydrocarbon fuels. A portion of the funds generated by the tax go to "Payment for Environmental Services" (PSA) program which gives incentives to property owners to practice sustainable development and forest conservation. Approximately 11% of Costa Rica's national territory is protected by the plan. The program now pays out roughly $15 million a year to around 8,000 property owners.

Canada


In the 2008 Canadian federal election
Canadian federal election, 2008
The 2008 Canadian federal election was held on Tuesday, October 14, 2008 to elect members to the Canadian House of Commons of the 40th Canadian Parliament after the previous parliament had been dissolved by the Governor General on September 7, 2008...

 a carbon tax proposed by Liberal Party
Liberal Party of Canada
The Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...

 leader Stéphane Dion
Stéphane Dion
Stéphane Maurice Dion, PC, MP is a Canadian politician who has been the Member of Parliament for the riding of Saint-Laurent–Cartierville in Montreal since 1996. He was the leader of the Liberal Party of Canada and the Leader of the Opposition in the Canadian House of Commons from 2006 to 2008...

, known as the Green Shift, became a central issue in the campaign. It would have been revenue-neutral, with increased taxation on carbon being balanced by tax cuts for individual citizens. However, it proved to be unpopular and contributed to the defeat of Liberal Party with its worst share of the popular vote since Confederation
Canadian federal election, 1867
The Canadian federal election of 1867, held from August 7 to September 20, was the first election for the new nation of Canada. It was held to elect members to the Canadian House of Commons, representing electoral districts in the provinces of Nova Scotia, New Brunswick, Ontario and Quebec in the...

.

Although there is no federal carbon tax, some Canadian provinces do have carbon taxes:
  • Quebec: The Canadian
    Canada
    Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

     province of Quebec
    Quebec
    Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....

     became the first in Canada to introduce a carbon tax. The tax was to be imposed on energy producers starting October 1, 2007, with revenue collected used for energy-efficiency programs including public transit.

  • British Columbia: On February 19, 2008, the province of British Columbia
    British Columbia
    British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...

     announced its intention to implement a carbon tax of $10 per tonne of carbon dioxide equivalent (CO2e) emissions (2.41 cents per litre on gasoline) beginning July 1, 2008, making BC the first North American jurisdiction to implement such a tax. The tax will increase each year after until 2012, reaching a final price of $30 per tonne (7.2 cents per litre at the pumps). Unlike previous proposals, legislation will keep the pending carbon tax revenue neutral by reducing corporate and income taxes at an equivalent rate. Also, the government will also reduce taxes above and beyond the carbon tax offset by $481 million over three years. In Jan., 2010, the carbon tax was applied to biodiesel. Before the tax actually went into effect, the government of British Columbia sent out "rebate checks" from expected revenues to all residents of British Columbia as of December 31, 2007.

  • Alberta: In July 2007 the Alberta
    Alberta
    Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...

     government imposed a carbon tax forcing companies that emit more than 100,000 tonnes of greenhouse gas annually to either reduce their CO2 emissions per barrel by 12 percent, pay $15 per tonne into a technology fund, or buy an offset in Alberta to apply against their total emissions. The tax will fall most heavily on oilsands companies and coal fired electricity plants. The carbon tax intends to give companies a real incentive to lower emissions while fostering technology that makes the job easier. The plan only covers the largest companies that produce 70% of Alberta’s emissions. There are concerns that this is a serious omission because the smallest energy producers are often the most casual about emissions and pollution. Because Alberta has the highest greenhouse gas emissions in Canada the majority of Albertans are strongly opposed to a nationwide carbon tax. There is a fear that a nationwide carbon tax would cause Alberta’s economy to suffer significantly more in proportion to other provinces. Alberta is also opposed to a Cap and Trade system it fears the trades will pull revenue out of the province, a fear not to be dismissed. Alberta’s local carbon tax allows the money to stay within Alberta.

United States


There is no nationwide carbon tax levelled in the USA, although a few states have introduced the tax. There is widespread opposition to such a measure during the current era of low industrial growth.
Colorado

In November 2006, voters in Boulder, Colorado
Boulder, Colorado
Boulder is the county seat and most populous city of Boulder County and the 11th most populous city in the U.S. state of Colorado. Boulder is located at the base of the foothills of the Rocky Mountains at an elevation of...

 passed what is proclaimed to be the first municipal 'carbon tax'. It is a tax on electricity consumption (utility bills) with deductions for using electricity from renewable sources (primarily Xcel's WindSource program). Their goal is to reduce carbon emissions to those outlined in the Kyoto Protocol; specifically to reduce their emissions by 7% below 1990 levels by 2012. Tax revenues get collected by Xcel Energy
Xcel Energy
Xcel Energy, Inc. is a public utility company based in Minneapolis, Minnesota, serving customers in Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin. Primary services are electricity and natural gas...

 and are directed to the city's Office of Environmental Affairs to fund programs to reduce community-wide greenhouse gas emissions.

The Climate Action Plan (CAP) tax is expected to raise $1.6 million dollars in 2010. The tax was increased to a maximum allowable rate by voters in 2009 in order to meet CAP goals. Currently the tax is set at $0.0049 /kWh for residential users (ave. $21 per year), $0.0009 /kWh for commercial (ave. $94 per year), and $0.0003 /kWh for industrial (ave. $9,600 per year). The revenues from the tax are expected to decrease over time as businesses and residents reduce their energy use and begin to use more solar and wind power. The tax will expire on March 31, 2013.

California

In May 2008, the Bay Area Air Quality Management District
Bay Area Air Quality Management District
The Bay Area Air Quality Management District is a public agency that regulates the stationary sources of air pollution in the nine counties of California's San Francisco Bay Area: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, southwestern Solano, and southern Sonoma...

, which covers nine counties in the San Francisco Bay Area
San Francisco Bay Area
The San Francisco Bay Area, commonly known as the Bay Area, is a populated region that surrounds the San Francisco and San Pablo estuaries in Northern California. The region encompasses metropolitan areas of San Francisco, Oakland, and San Jose, along with smaller urban and rural areas...

, passed a carbon tax on businesses of 4.4 cents per ton of CO2.

Some states are considering the imposition of carbon taxes. For example in 2006, the state of California, passed AB-32 which requires California to reduce greenhouse gas emissions. In an effort to execute AB-32 (Global Warming Solutions Act of 2006
Global Warming Solutions Act of 2006
The Global Warming Solutions Act of 2006, or Assembly Bill 32, is a California State Law that fights climate change by establishing a comprehensive program to reduce greenhouse gas emissions from all sources throughout the state...

), the California Air Resources Board put forth the idea to implement a carbon tax but has yet to reach agreement with the Western States Petroleum Association
Western States Petroleum Association
Western States Petroleum Association is a non-profit trade association that represents companies that account for the bulk of petroleum exploration, production, refining, transportation and marketing in the six western states of Arizona, California, Hawaii, Nevada, Oregon and Washington...

 who represent the refineries in the state. The WSPA holds that AB-32 only allows a carbon tax to cover administrative costs.

Maryland

In May 2010 Montgomery County, Maryland
Montgomery County, Maryland
Montgomery County is a county in the U.S. state of Maryland, situated just to the north of Washington, D.C., and southwest of the city of Baltimore. It is one of the most affluent counties in the United States, and has the highest percentage of residents over 25 years of age who hold post-graduate...

 passed the nation's first county-level carbon tax. The new legislation calls for payments of $5 per ton of CO2 emitted from any stationary source emitting more than a million tons of carbon dioxide during a calendar year. There is only one source of emissions fitting the criteria laid out by the council, an 850 megawatt coal-fired power plant owned by Mirant Corporation. The tax is expected to raise between $10 million and $15 million for the county which is facing a nearly $1 billion budget gap The plan calls for half of revenue to go toward creating a low interest loan plan for county residents to invest in residential energy efficiency upgrades. The County's energy supplier buys its energy at auction, so Mirant must continue to sell its energy at market value, which means no discernible increase in energy costs will be felt by the counties residents. In June 2010 the Mirant Corporation opened a lawsuit against the county to stop the tax. It is expected that litigation will take years to be completed

Harmonized carbon taxes


Cooper (1998, 2001) has been a leading proponent of a harmonized carbon tax (a tax where the country setting the tax keeps all the revenues). Under his proposals, all participating nations would be subject to a tax at a common rate, thus achieving cost-effectiveness. A number of problems have been suggested with Cooper's proposals:
  • One criticism is of the fairness of having developing countries being subject to the same tax rates as developed countries, given their relative level of welfare and responsibility for the climate problem.
  • It has been asked what incentive developed countries would have to adopt a tax.
  • It is possible that governments would attempt to neutralize the effects of the tax on certain economic sectors.
  • Given the presence of existing tax distortions, it might not be politically feasible to implement a uniform tax rate.

Support


Former US Vice President Al Gore
Al Gore
Albert Arnold "Al" Gore, Jr. served as the 45th Vice President of the United States , under President Bill Clinton. He was the Democratic Party's nominee for President in the 2000 U.S. presidential election....

 strongly backed a carbon tax in his book, Earth in the Balance
Earth in the Balance
Earth in the Balance: Ecology and the Human Spirit is a 1992 book written by Al Gore, published in June 1992, shortly before he was elected Vice President in the 1992 presidential election...

, but this became a political liability after the Republicans attacked him as a "dangerous fanatic
Fanaticism
Fanaticism is a belief or behavior involving uncritical zeal, particularly for an extreme religious or political cause or in some cases sports, or with an obsessive enthusiasm for a pastime or hobby...

". In 2000, when Gore ran for President, one commentator labeled Gore's carbon tax proposal a "central planning solution" harking back to "the New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...

 politics of his father."

Former US Federal Reserve chairman Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...

 suggested (February 6, 2007) that "it would be wiser to impose a tax on oil, for example, than to wait for the market to drive up oil prices."

Climatologist James E. Hansen has argued in support of a carbon tax. A number of businesses and business leaders also support a carbon tax. These include:
  • FedEx CEO Fred Smith;
  • James Owens, CEO of Caterpillar;
  • and Paul Anderson, CEO and Chairman of Duke Energy.


Prasad, a Northwestern University sociologist, wrote about Denmark's carbon tax in the New York Times in 2008. In her view, the Danish carbon tax served as an example of how to reduce emissions in the US. Prasad argued, however, that a critical component for Denmark's success in reducing carbon emissions from 1990–2005 was that the tax revenues from the carbon tax were dedicated to subsidies for firms to use for alternative, environmentally-cleaner sources of energy.

Carbon taxes compared to cap-and-trade


An alternative government policy to a carbon tax is a cap on greenhouse gas (GHG) emissions. Emission levels of GHGs are capped and permits to pollute are freely allocated (called "grandfathering") or auctioned to polluters. Auctioning permits has significant economic advantages over grandfathering. In particular, auctioning raises revenues that can be used to reduce distortionary taxes and improve overall efficiency. A market may be allowed for these emission permits so that polluters can trade some or all of their permits with others (cap-and-trade). A hybrid instrument of a cap and carbon tax can be made by creating a price-floor and price-ceiling for emission permits. A carbon tax can also be implemented concurrently with a cap.

Unlike a cap system with grandfathered permits, a carbon tax raise revenues. If the revenues are used to reduce other distortionary taxes, this can improve the efficiency of the tax. On the other hand, a cap with grandfathered permits can have an efficiency advantage of being applied to all industries. This provides an equal incentive at the margin
Margin (economics)
In economics, a margin is a set of constraints conceptualised as a border. A marginal change is the change associated with a relaxation or tightening of constraints — either change of the constraints, or a change in response to this change of the constraints.- Extensive and intensive margins...

 for all polluters to reduce their emissions. This is an advantage over a tax that exempts or has reduced rates for certain sectors.

Views


Both cap-and-trade and carbon taxes give polluters a financial incentive to reduce their GHG emissions. Carbon taxes provide price certainty on emissions, while a cap provides quantity certainty on emissions. In a literature assessment, Fisher et al.. (1996:430) concluded that the choice between an international quota (cap) system, or an international carbon tax, remained ambiguous.

Supporters of taxes over caps


  • James E. Hansen has argued in his book (Storms of My Grandchildren
    Storms of My Grandchildren
    Storms of My Grandchildren is climate scientist James Hansen's first book, published by Bloomsbury Press in 2009. The book is about threats to people and habitability for life on earth from global warming.-Themes:...

    ) and in an open letter to President Obama, that policies to cap carbon emissions and trade permits for them (see cap and trade) will only make money for banks and hedge funds and allow 'business-as-usual' for the chief carbon-emitting industries. He advocates phasing out and protesting against coal-fired power stations that do not have onsite carbon sequestration and imposing a progressive carbon tax.
  • Carl Pope
    Carl Pope
    Carl Pope is the former Executive Director of the Sierra Club, an American environmental organization founded by conservationist John Muir in 1892. Pope was appointed to his position as Executive Director in 1992, and served until January 20, 2010, when he was succeeded by Michael Brune...

    , executive director of the Sierra Club
    Sierra Club
    The Sierra Club is the oldest, largest, and most influential grassroots environmental organization in the United States. It was founded on May 28, 1892, in San Francisco, California, by the conservationist and preservationist John Muir, who became its first president...

    , supports a carbon tax over cap-and-trade because employers will know exactly what they paid for the carbon dioxide they produced, and because a cap-and-trade system (with grandfathered permits) rewards those who have the highest emissions now and have done the least to reduce them previously.
  • Gary Becker
    Gary Becker
    Gary Stanley Becker is an American economist. He is a professor of economics, sociology at the University of Chicago and a professor at the Booth School of Business. He was awarded the Nobel Memorial Prize in Economic Sciences in 1992, and received the United States' Presidential Medal of Freedom...

    , a follower of the Chicago School of Economics, expressed his support for carbon taxes over cap-and-trade. Becker won the Nobel Prize in economics in 1992.
  • On December 11, 2008, Rex Tillerson
    Rex Tillerson
    Rex W. Tillerson is the current Chairman, President, and CEO of Exxon Mobil Corporation, positions previously held by Lee Raymond.-Education:...

    , the CEO of Exxonmobil
    ExxonMobil
    Exxon Mobil Corporation or ExxonMobil, is an American multinational oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are in Irving, Texas...

    , said a carbon tax is "a more direct, more transparent and more effective approach" than a cap and trade program, which he said, "inevitably introduces unnecessary cost and complexity." He also said that he hoped that the revenues from a carbon tax would be used to lower other taxes so as to be revenue neutral.
  • The American Enterprise Institute, Environmental economist Jack Pezzey, economist Jeffrey Sachs
    Jeffrey Sachs
    Jeffrey David Sachs is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments in the...

     (director of the Earth Institute of Columbia University), Yale economist William Nordhaus
    William Nordhaus
    William Dawbney "Bill" Nordhaus is the Sterling Professor of Economics at Yale University. Nordhaus lives in New Haven, Connecticut, with his wife Barbara.-Career:...

    , The Earth Policy Institute
    Earth Policy Institute
    Earth Policy Institute is an environmental organization based in Washington DC in the United States. It was founded by Lester R. Brown in 2001...

    , The Australia Institute
    The Australia Institute
    The Australia Institute is a left wing Australian think tank conducting public policy research, funded by grants from philanthropic trusts, memberships and commissioned research....

    , the Centre for Independent Studies
    Centre for Independent Studies
    The Centre for Independent Studies is a libertarian think tank founded in April 1976 by Executive Director Greg Lindsay. The CIS is one of six think tanks recognised by the National Institute for Research Advancement in Tokyo, Japan...

    , and Harvard professor, Gregory Mankiw also prefer carbon taxes to cap-and-trade.

Difficulties with taxes


According to the Carbon Trust (2009), a carbon tax suffers from combining a set price for carbon along with a transfer of revenue from industry to government. This, it is argued, guarantees that the tax will not be set at the appropriate level, but will instead be determined by the politics of large-scale revenue transfers. With a cap, however, the revenues from emission allowances can be separately negotiated with industry.

Another difficulty with taxes are whether the emissions reductions they bring about actually exist – that is, the "additionality" of emissions reductions (Carbon Trust, 2009). Additionality requires a comparison of observed emission reductions against an estimate of the emission reductions that would have taken place without the presence of the tax (the emissions "baseline"). The additionality of a carbon tax is difficult to establish due to effect that other policies have on emissions, e.g., subsidies and regulations. It would, for example, be possible for a government to introduce a carbon tax and then offset the impact of this by making other changes in tax structures.

Distributional impacts


In most instances, firms pass the costs of a carbon price onto consumers. Studies typically find that poor consumers spend a greater proportion of their income on energy-intensive goods and fuel. Therefore cost increases in energy tend to impact the poor worse than the rich.

Studies by Metcalf et al. (2008) and Metcalf (2009) consider the possible distributional impacts of carbon taxes in the United States. The 2008 study considers three recent tax bills introduced to the US Congress. The taxes themselves are highly regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

, but when revenues from the tax are returned lump-sum, the taxes become progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

. The 2009 study looks at a carbon tax combined with a reduction in payroll tax
Payroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...

es. It is found that this combination can be distributionally neutral. With an adjustment in Social Security payment
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

s for the lowest-income households, the carbon tax policy can be made progressive.

A study by Ekins
Paul Ekins
Paul Ekins is a prominent British academic in the field of sustainable economics. He is a former member of the Green Party.-Political career:...

 and Dresner (2004) considers the distributional impact in the UK of introducing a carbon tax and increasing fuel duty. It is found that a carbon tax can be made progressive, but that the tax would make those currently worst affected by fuel poverty more badly off. Of the policy options looked at for transport, the most effective in compensating low-income motorists is found to be an increase in fuel duties and the abolishment of vehicle excise duty
Vehicle excise duty
Vehicle Excise Duty is a vehicle road use tax levied as an excise duty which must be paid for most types of vehicle which are to be used on the public roads in the United Kingdom...

.

Irish criticism


In Ireland
Ireland
Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

 it was speculated that a carbon tax would be introduced in the Government's supplementary April 2009 budget. This is a matter of concern for rural dwellers, who make up about one third of the Irish population. The NGO Irish Rural Link http://www.irishrurallink.ie has noted that according to the Irish Economic and Social Research Institute (ESRI) “a carbon tax would weigh more heavily on rural households”. Irish Rural Link claim that experience from other countries has shown that carbon taxation will only succeed if it is part of a comprehensive package of measures, which includes reducing some other taxes which does not appear to be the Government's approach. IRL claim that in the rush to introduce revenue raising measures the regressive effects of a carbon tax will not be adequately offset.

42% of Ireland's population live in rural areas. This figure is arrived at using spatial analysis to identify areas with less than 150 persons per square kilometre (the OECD definition of 'rural').

Footnotes


Bashmakov et al. (2001) refer to emissions taxes. Carbon taxes are not identical to emissions taxes, but they can be designed to be a close approximation.

See also


  • 4 Degrees and Beyond International Climate Conference
    4 Degrees and Beyond International Climate Conference
    The 4 Degrees and Beyond International Climate Conference, subtitled Implications of a Global Climate Change of 4+ Degrees for People, Ecosystems and the Earth-system, was held 28-30 September 2009 at Oxford, United Kingdom. Implications of...

  • Economics of global warming
    Economics of global warming
    -Definitions:In this article, the phrase “climate change” is used to describe a change in the climate, measured in terms of its statistical properties, e.g., the global mean surface temperature. In this context, “climate” is taken to mean the average weather. Climate can change over period of time...

  • Cap and share
    Cap and Share
    Cap and Share was originally developed by Feasta and is a regulatory and economic framework for controlling the use of fossil fuels in relation to climate stabilisation...

  • Carbon Credit
    Carbon credit
    A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent equivalent to one tonne of carbon dioxide....

  • Environmental economics
    Environmental economics
    Environmental economics is a subfield of economics concerned with environmental issues. Quoting from the National Bureau of Economic Research Environmental Economics program:...

  • Environmental impact of aviation
  • Gasoline tax
  • Hyper-mobile travel
    Hypermobility (travel)
    The term hypermobility in regard to travelers arose around 1980 and is a concept that has increased in useage since the early 1990s: Damette ; Hepworth and Ducatel ; Whitelegg ; Lowe ; van der Stoep ; Shields ; Cox ; Adams ; Khisty and Zeitler ; Gössling et al. ; and Mander & Randles...

  • Landfill Tax Credit Scheme
    Landfill Tax Credit Scheme
    The Landfill Tax Credit Scheme is a scheme for the distribution of funds generated from Landfill Tax in the UK. The LTCS was designed to help mitigate the effects of landfill upon local communities. It encourages partnerships between landfill operators, their local communities and the voluntary...

     (in the UK)
  • Mitigation of global warming
    Mitigation of global warming
    Climate change mitigation is action to decrease the intensity of radiative forcing in order to reduce the potential effects of global warming. Mitigation is distinguished from adaptation to global warming, which involves acting to tolerate the effects of global warming...

  • The Pigou Club
    Pigou Club
    The Pigou Club is described by its inventor, economist N. Gregory Mankiw, as "an elite group of economists and pundits who have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes." Typically, these pundits and economists also advocate lowering other taxes, such as the...

  • Polluter pays principle
    Polluter pays principle
    In environmental law, the polluter pays principle is enacted to make the party responsible for producing pollution responsible for paying for the damage done to the natural environment. It is regarded as a regional custom because of the strong support it has received in most Organisation for...

  • Tax horsepower
    Tax horsepower
    The tax horsepower or taxable horsepower was an early system by which taxation rates for automobiles were reckoned in some European countries, such as Britain, Belgium, Germany, France, and Italy; some US states like Illinois charged license plate purchase and renewal fees for passenger...

  • Tax on electricity
  • Congestion pricing
    Congestion pricing
    Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion. Examples include some toll-like road pricing fees, and higher peak charges for utilities, public transport and slots in canals and airports...

  • Emissions Reduction Currency System
    Emissions Reduction Currency System
    Emissions Reduction Currency Systems are schemes that provide a positive economic and or social reward for reductions in greenhouse gas emissions, either through distribution or redistribution of national currency or through the publishing of coupons, reward points, social currency, or...



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