Smoke rising from the Eggborough Power Station. (John Giles / PA Wire)
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Carbon-tax haters can relax. The proposal for a national carbon tax released on February 8 by high-level Republicans, including über-GOP consigliere James Baker, isn’t going anywhere. Financially and ideologically, the American right is wedded to carbon fuels. Trumpism runs on and reeks of them. Predictably, not a single Republican in Congress, and no one in the White House, has uttered a single positive word about the new carbon-tax plan.Ad Policy
Nevertheless, the proposal’s intended audience may not be Beltway Republicans but rather those ordinary Americans, majorities in both parties, who say they want action on climate, and who therefore might yet figure in the political equation over climate policy. That group includes progressives. We should pay attention: Carbon taxes matter.
Our long-building climate crisis is already materializing as drowned coasts, punishing droughts, vanishing glaciers—and political upheaval. At its root is a century-old lie: market prices for gasoline and other fossil fuels that do not factor in the damage from burning them.
A clean-energy revolution is at last underway, with wind power, solar electricity, and energy efficiency becoming not only cheaper by the day but also easier to deploy. Still, the clean-energy transition will be slowed until prices of coal, oil, and gas reflect their true environmental costs. A carbon tax could do that, if designed properly.
How carbon taxes work is simple enough, at least in theory. Fuel use is infinitely varied and intricately woven into society in ways that regulations such as auto-mileage standards can’t fully reach. Clear price signals, on the other hand, can be a nearly magic wand to help billions of invisible hands rapidly reduce and replace fossil fuels.
But with a carbon tax come difficult choices about the vast revenue it will generate. Carbon taxing had a test run at the ballot box last November in the state of Washington, and it ended badly.
Progressives can’t just walk away from carbon taxes, the policy tool with the best chance of catching fire globally.
On November 8, voters in the Evergreen State rejected by a nearly 3-to-2 margin what would have been the nation’s first statewide carbon tax. A win for “Initiative 732” would have given the United States a carbon-tax beachhead, like Canada’s British Columbia, which has had a small but successful carbon tax since 2008.
Remarkably, the decisive factor in defeating I-732 may not have been money from Big Carbon or even popular aversion to higher taxes, since the initiative was tailored to keep Washingtonians’ tax burden unchanged. What doomed I-732 was a fissure within the climate movement, with centrist economists and other policy wonks in favor of the initiative and progressive greens opposed.
Stated briefly, climate activists in Washington split over opposing answers to two key questions: What are carbon taxes for, and who gets to design them?
Carbon taxes can cut emissions in two ways. As noted above, they raise the price of carbon fuels, thereby worsening their competitive position vis-à-vis cleaner fuels. In addition, the tax revenues raised by a carbon tax can be invested in clean-energy infrastructure such as public transit and community solar.
The first path—the “price pull” of boosting market prices of carbon fuels—is what dazzles economists. The second route—the “revenue push” of investing in green infrastructure—appeals to many ordinary folks, especially on the left. Some progressives actively distrust policies that lean hard on price signals, partly for fear that workers in dirty industries will be penalized as investment migrates to cleaner alternatives.
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For decades, reactionary forces in the United States have been able to block seemingly every new public endeavor by labeling it “tax and spend.” The Washington State carbon-tax proponents believed they had an antidote: Don’t allow the government to spend the revenues from the carbon tax; rather, use those revenues to reduce other taxes. The political assumption seemed to be that going “revenue neutral,” though it might frustrate the left—bye-bye, public investment—could placate the right or at least capture the center. And so Carbon WA, as the advocates of I-732 called themselves, fashioned its ballot initiative around cuts to the state’s regressive sales tax.
Progressive greens recoiled. The Alliance for Jobs and Clean Energy, a state umbrella group of environmental-justice organizations and mainstream allies, blasted I-732 for starving green jobs and ignoring front-line communities. So did nationally prominent progressive leaders like Naomi Klein and Van Jones. The measure’s electoral chances, which were never good, could not withstand this split. On Election Day, as Hillary Clinton was besting Trump in Washington State by half-a-million votes, the carbon tax was rejected, 59 percent to 41 percent.
But progressives can’t just walk away from carbon taxes. Carbon taxes are the only policy tool that, by slashing demand in a rapid, predictable way, divests our economy from fossil fuels and enables governments, business, and consumers to make investments in the transition to clean energy. Carbon taxes also have the best chance of catching fire globally.
The carbon tax James Baker brought to the Trump White House on February 8 on behalf of the new Climate Leadership Council has a lot in common with I-732: The Council’s proposal is also avowedly revenue neutral. But rather than lowering an existing tax, it relies on a so-called tax-and-dividend model: As the state of Alaska does with oil revenues, revenues from the Council’s national carbon tax would be returned equally to all American households in quarterly “dividends” digitally deposited in Social Security accounts. The tax would start at $40 per ton of carbon dioxide.
Earmarking all of the revenue to these dividends creates the political will to raise the tax every year, since the dividends rise in tandem with the tax rate. Ramping up the tax by $5 a year would shrink the use of carbon fuels so drastically that, by my calculations, US carbon emissions in 2030 would be 40 percent less than they were in 2005 (a standard baseline year).
Government policy revolves around trade-offs, and on balance James Baker’s carbon tax is worth supporting.
Yet this progress comes with a catch. The council would phase out much of the Environmental Protection Agency’s regulatory authority over greenhouse gases and would outright repeal President Obama’s Clean Power Plan to cut emissions from electricity generation. It would also immunize fossil-fuel companies from lawsuits for damages done by their products—lawsuits such as those bound to arise from the revelations that ExxonMobil and other companies knew for decades about the climate damages their products cause, and lied about it.
But government policy revolves around trade-offs, and on balance the council’s carbon tax is worth supporting. After all, well over 80 percent of the Clean Power Plan’s targeted reductions for 2030 were already achieved by the end of 2016. Thus trading away the Clean Power Plan for a tax that could scour fossil fuels from the entire economy is like swapping an aging ballplayer for the next superstar.
Of course, some people will not see it that way, particularly traditional green groups that helped write the laws and regulations that cleaned up the nation’s air and water. Some will regard the council’s trade as a ploy to undo the EPA’s authority to protect not just climate—where it may be largely ineffectual anyway—but public health.
With Republicans tightly lashed to climate denial, the value of Baker’s carbon-tax proposal may be less as a gateway to legislation and more as a spur for progressives and other citizens to take a clear look at carbon pricing.
Will progressives trust the verdict of economists that a revenue-neutral carbon tax can drive the energy transition so long as the tax level is high enough? Or do we support carbon taxes only if the revenues are invested in the clean-energy transition? If so, how do we craft a spending program that reconciles the claims of competing interests? And what is our blueprint for building political power to enact such a carbon tax, when “tax” remains a dirty word in national politics?
Clear majorities of Americans want climate action. Remarkably, some polls have even found that majorities of Americans support carbon taxes like the Climate Leadership Council’s proposal. With the Democrats’ national defeats last November, the failure of climate activists to unite on the Washington state referendum is looking like an unforced error of cruel proportions. We can’t afford to repeat that mistake at the national level.
A carbon tax is a tax levied on the carbon content of fuels. It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel (coal, petroleum, and natural gas) and converted to carbon dioxide (CO
2) and other products when combusted. In contrast, non-combustion energy sources—wind, sunlight, geothermal, hydropower, and nuclear—do not convert hydrocarbons to CO
2 is a heat-trapping "greenhouse" gas which represents a negative externality on the climate system (see scientific opinion on global warming). Since GHG emissions caused by the combustion of fossil fuels 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 tax offers social and economic benefits. It is a tax that increases revenue without significantly altering the economy while simultaneously promoting objectives of climate change policy. The objective of a carbon tax is to reduce the harmful and unfavorable levels of carbon dioxide emissions, thereby decelerating climate change and its negative effects on the environment and human health.
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. They help to address the problem of emitters of greenhouse gases not facing the full social cost of their actions. Carbon taxes can be a regressive tax, in that they may directly or indirectly affect low-income groups disproportionately. The regressive impact of carbon taxes could 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 vehicles, rather than on CO
2 emissions directly.
Opposition to increased environmental regulation such as carbon taxes often centers 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 United States,Russia, and China, are resisting carbon taxation.
CO2 and global warming
Carbon dioxide is one of several heat-trapping greenhouse gases (GHGs) emitted by humans (anthropogenic GHGs).:6 The scientific consensus 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 of CO2. Carbon taxes are one of the policies available to governments to reduce GHG emissions.
In the Kyoto Protocol (an international treaty), CO2 emissions are regulated along with other GHGs. Different GHGs have different physical properties: the global warming potential is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent.
See also: Carbon tax § Carbon taxes compared to cap-and-trade
|“||Economists like to argue, about climate change as much as anything else. [...] But on the biggest issue of all they nod in agreement, whatever their political persuasion. The best way to tackle climate change, they insist, is through a global carbon tax.||”|
|— The Economist, 28 November 2015|
A carbon tax is a form of pollution tax (although carbon dioxide is naturally occurring). Pollution taxes are often grouped with two other economic policy instruments: tradable pollution permits/credits and subsidies. These three environmental economic policy instruments are built upon a foundation of a command and control regulation. The difference is that classic command-penalty regulations stipulate, through performance or prescriptive standards, what each polluter is required to do to be in compliance with the law. Command and control regulation is not considered an economic instrument as it is typically enforced by narrower means such as stop or control order, though it may include an administrative monetary penalty in site-specific regulations. The instrumental distinction between a tax and a command-and-control regulation is determined by the enacted legislative names, and whether they contain "tax" as a defined term within the Act, for example British Columbia's Carbon Tax Act versus Alberta's Specified Gas Emitters Regulation, Alta Reg 139/2007
A carbon tax is also an indirect tax—a tax on a transaction—as opposed to a direct tax, which taxes income. A carbon tax is 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. 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, and should equal the marginal 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 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. David Gordon Wilson first proposed a carbon tax in 1973.
Social cost of carbon
See also: Economic impacts of climate change § Marginal impacts
The social cost of carbon (SCC) is the marginal cost of the impacts caused by emitting one extra tonne of carbon (as carbon dioxide) at any point in time, inclusive of ‘non-market’ impacts on the environment and human health. The concept of a social cost of carbon was first mooted by the Reagan administration in 1981. The initial purpose of putting a price on a ton of emitted CO2 was to aid policymakers in evaluating whether a policy designed to curb climate change is justified. An intuitive way of looking at this is as follows: if the price of carbon is $50 per tonne in 2030, and we currently have a technology that can reduce emissions by 1 million metric tonnes in 2030, then any investment amount below $50 million would make economic sense, while any amount over that would lead us to consider investing the money somewhere else, and paying to reduce emissions in 2030.
Calculating the SCC requires estimating the residence time of carbon dioxide in the atmosphere, along with estimating the impacts of climate change. The impact of the extra tonne of carbon dioxide in the atmosphere must then be converted to equivalent impacts on climate and human health, as measured by the amount of damage done and the cost to fix it. In economics, comparing impacts over time requires a discount rate. This rate determines the weight placed on impacts occurring at different times.
Best estimates of the SCC come from Integrated Assessment Models (IAM) which predict the effects of climate change under various scenarios and allow for calculation of monetized damages. One of the most widely used IAMs is the Dynamic Integrated model of Climate and the Economy (DICE).
The DICE model, developed by William Nordhaus, makes provisions for the calculation of a social cost of carbon. The DICE model defines the SCC to be “equal to the economic impact of a unit of emissions in terms of t-period consumption as a numéraire.” 
The SCC figure computed in 2015 is $31.2 per ton of CO2 for emissions, this amount will rise 3% in real terms, to account for inflation till 2050. 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 3.7 tCO2.
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, SCC estimates are not complete, and externalities in the market are difficult to calculate accurately, resulting in an inaccurate carbon tax (Yohe et al.., 2007:823).
Estimates of the SCC are highly uncertain. Yohe et al. (2007:813) summarized the literature on SCC estimates: peer-reviewed estimates of the SCC for 2005 had an average value of $43/tC ($12/tCO2) with a standard deviation 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, which is a measure of the amount of global warming expected for a doubling in the atmospheric concentration of CO
2), different choices of discount rate, different valuations of economic and non-economic impacts, treatment of equity, and how potential catastrophic impacts are estimated. One specific issue arises over coming to a consensus on what discount rate to use. Some, like Nordhaus, advocate for a discount rate that is pegged to current market interest rates, as we should treat efforts to reduce carbon dioxide emissions just like we treat any other economic activity. Others, like Stern, propose a much smaller discount rate because "normal" discount rates are skewed when applied over the time scales over which climate change acts. As a result, 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. A recent meta-analysis of the literature on the estimates of the social costs of carbon, however, finds evidence of publication bias in favor of larger estimates.
Carbon leakage 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.
Carbon leakage is central to the discussion on climate policy, given the confluence of issues that are currently being debated, including the 2030 Energy and Climate Framework and the review of the EU carbon leakage list by 2014.
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, trade bans and deaths.
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 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
See also: energy tax and fee and dividend
Two other types of taxes that are related to carbon taxes are emissions taxes and energy taxes. 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.
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 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 potentials. 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.
Another type of tax is a fee and dividend, where the money collected from the tax is returned equitably to all households, effectively taxing carbon emitters and rebating those that burn less carbon.
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, 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" 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.
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, see Social cost of carbon, above), the table below estimates the tax:
(mass of CO2 produced)
(per fuel unit)
(mass of CO2 produced)
|Tax per kWh of electricity|
|gasoline||19.6 lb/US gal (2.35 kg/L)||$0.11/USgal ($0.028/L)||n/a||n/a|
|diesel fuel||22.3 lb/US gal (2.67 kg/L)||$0.12/USgal ($0.032/L)||n/a||n/a|
|jet fuel||22.1 lb/US gal (2.65 kg/L)||$0.12/USgal ($0.032/L)||n/a||n/a|
|natural gas||0.1206 lb/cu ft (1.93 kg/m3)||$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 (subbituminous)||3715 lb/ton (1.858 kg/kg)||n/a||213 lb/MBTU (330 g/kWh)||$0.0119|
|coal (bituminous)||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 of the generating power plant, which varies from power plant to power plant. The table follows the American Physical Society (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 efficiency, in some cases exceeding 50%."The highest efficiency reached is 62% by the new EDF powerplant in Bouchain  A theoretical conversion rate of 100% is 3.412 BTU/Wh. A more practical limit for thermal power plants is Carnot's theorem.
Both energy and carbon taxes have been implemented in responses to commitments under the United Nations Framework Convention on Climate Change. In most cases where an energy or carbon tax is implemented, the tax is implemented in combination with various forms of exemptions.
Carbon Tax is payable in foreign currency at the rate of US$0.03 (3 cents) per litre of petroleum and diesel products or 5% of cost, insurance and freight value (as defined in the Customs and Excise Act [Chapter 23:02]), whichever is greater.
This section's factual accuracy may be compromised due to out-of-date information. Please update this article to reflect recent events or newly available information.(August 2011)
A tax on emissions has been proposed for South Africa. Announced by Finance Minister Pravin Gordhan, the tax will be implemented starting September 1, 2015 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 affecting 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.
The Chinese Government Ministry of Finance had proposed to introduce a carbon tax from 2012 or 2013, based on carbon dioxide output from hydrocarbon fuel sources such as oil and coal. The introduction of a carbon tax in China might affect severely the internal market, as well as many other laws and regulations of the country, but given the size of Chinese economy also contribute importantly to the mitigation of climate change.
On July 1, 2010, India introduced a nationwide carbon tax of 50 rupees per tonne ($1.07/t) of coal both produced and imported into India. In a budget speech in 2014, the finance Minister increased the price to 100 rupees per tonne ( $1.60/t at $60.5 conversion) 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 then 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. With the new government in India under PM Narendra Modi, the carbon tax has been further increased form 100Rs per tonne to 200Rs per tonne in the Budget 2015-16. Currently the carbon tax stands at 400rs per tonne.
In October 2012 Japan introduced a Carbon tax with the goal to take action on mitigating dangerous climate change. The government plans to use the revenues generated from this tax to finance clean energy and energy saving projects.
In December 2009, nine industry groupings opposed a carbon tax at the opening day of the COP-15 Copenhagen climate conference stating, "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.
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 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 (2007) 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.
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 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 that 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.
Main article: Carbon pricing in Australia
On 1 July 2012 the Australian Federal government introduced a carbon price of AUD$23 per tonne of emitted CO2-e on selected fossil fuels consumed by major industrial emitters and government bodies such as councils. To offset the impact of the tax on some sectors of society, the government reduced income tax (by increasing the tax-free threshold) and increased pensions and welfare payments slightly to cover expected price increases, as well as introducing compensation for some affected industries. On 17 July 2014, a report by the Australian National University estimated that the Australian scheme had cut carbon emissions by as much as 17 million tonnes, the biggest annual reduction in greenhouse gas emissions in 24 years of records in 2013 as the carbon tax helped drive a large drop in pollution from the electricity sector.
On 17 July 2014, the Abbott Government passed repeal legislation through the Senate, and Australia became the first nation to abolish a carbon tax. In its place the government set up the Emission Reduction Fund, paid by taxpayers from consolidated revenue, which according to RepuTex, a markets consultancy, estimated the government's main climate policy may only meet a third of the emissions reduction challenge if Australia is to cut 2000 levels by 5% by 2020.
In 2005, the Fifth Labour Government proposed a carbon tax in order to meet obligations under the Kyoto Protocol. 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 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, some of the minor parties supporting the Fifth Labour Government (NZ First and United Future) opposed the proposed tax, and it was abandoned in December 2005. In 2008, the New Zealand Emissions Trading Scheme was enacted via the Climate Change Response (Emissions Trading) Amendment Act 2008.
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).
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 Scheme (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 tonne of carbon dioxide emissions at a suggested rate of €4 to €30 per tonne of CO2.
As of the year 2002, the standard carbon tax rate since 1996 amounts to 100 DKK per tonne 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 tonne of oil to 5.6 DKK per tonne of natural gas and 0 for non-combustible renewables. The rate for electricity is 1164 DKK per tonne 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 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.
Finland 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.
On September 10, 2009, 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, despite his vow to "lead the fight to save the human race from global warming", did not support the bill, saying that France needed support from the rest of the European Union before it would try and proceed with a carbon tax.
In 2013 Carbon tax was again announced for France. Prime Minister Jean-Marc Ayrault launched the new Climate Energy Contribution (CEC) on September 21, 2013. The tax will apply at a rate of €7/tonne CO2 in 2014, €14.50 in 2015 and rising to €22 in 2016.
The German ecological tax reform was adopted in 1999. After that, the ecological law of the country was amended twice-in 2000 and in 2003. First of all, the law provided rung-by-rung growth of the taxes on fuel and fossil fuels and laid the foundation for the tax for energy. Only in 2003, after the law's gradual implementation, the amount of emissions reduced by 2.4%, which is 20 million tons of CO2. Thus, the eco-tax is one of the most powerful instruments for climate protection in Germany. The number of workplaces rose by 250,000 jobs.
Republic of Ireland
In 2004, following a policy review, the Irish Government rejected the introduction of a carbon tax as a policy option. However, in 2007 a Fianna Fáil-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.
The NGO Irish Rural Link 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.
Carbon Tax was introduced in Ireland in the 2010 budget by the Green Party/ Fianna Fáil coalition government at a rate of €15/tonne CO2 which was applied to motor gasoline and diesel and to home heating oil (diesel). Electricity was exempted as electricity generation from fossil fuel power stations was covered under the EU ETS. Solid fuels including coal and turf were also exempted.
In 2011 the new government coalition of Fine Gael and Labour raised the carbon tax by 33% to €20/tonne. Farmers were granted a tax relief to compensate for this increase.
The Netherlands 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, 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 tonne of CO2 and 27.00 NLG (~16.40) per tonne 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 was both used to finance the national Treasury and to finance the activities to help reach the goals of recycling 65% of used packaging by 2012. The organization Nedvang (Nederland van afval naar grondstof or The Netherlands from waste to value), which was set up in 2005, is the 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 waste 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 was analyzed on behalf of the Ministry of Infrastructure and the Environment and proven to be ineffective. Therefore, the packaging tax was abolished. Producer responsibility activities for packaging are now financed based on private contracts, that have been declared legally binding.
In January 1991, Sweden enacted a CO2 tax of 0.25 SEK/kg ($40 per ton at the time, or EUR 27 at current rates) 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 ($60 per ton) of CO2. In 2007, the tax was SEK 930 (EUR 101) per ton of CO2.
The tax is credited with spurring a significant move from hydrocarbon fuels to biomass. As the 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.
In 1993, the UK government introduced the fuel duty escalator (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 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.