From Wikipedia, the free encyclopedia
Emission trading and carbon taxes around the world (2019)
Carbon tax implemented or scheduled
A coal-fired power plant in
Luchegorsk, Russia. A carbon tax would tax the
CO
2 emitted from the power station.
A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events. In this way, they are designed to reduce carbon dioxide (CO
2) emissions by increasing prices. This both decreases demand for such goods and services and incentivizes efforts to make them less carbon-intensive. In its simplest form, a carbon tax covers only CO2 emissions; however, they can also cover other greenhouse gases, such as methane or nitrous oxide, by calculating their global warming potential relative to CO2.
When a hydrocarbon fuel such as coal, petroleum, or natural gas is burnt, its carbon is converted to CO
2 and other carbon compounds/allotropes. Greenhouse gases cause global warming, which damages the environment and human health. This negative externality can be reduced by taxing carbon content at any point in the product cycle. Carbon taxes are thus a type of Pigovian tax. Research shows that carbon taxes effectively reduce emissions. Many economists argue that carbon taxes are the most efficient (lowest cost) way to curb climate change. Seventy-seven countries and over 100 cities have committed to achieving net zero emissions by 2050. As of 2019, carbon taxes have been implemented or scheduled for implementation in 25 countries, while 46 countries put some form of price on carbon, either through carbon taxes or emissions trading schemes.
On their own, carbon taxes are usually regressive,
since lower-income households tend to spend a greater proportion of
their income on emissions-heavy goods and services like transportation
than higher-income households. To make them more progressive,
policymakers usually try to redistribute the revenue generated from
carbon taxes to low-income groups by lowering income taxes or offering rebates.
Background
Carbon dioxide is one of several heat-trapping greenhouse gases (others include methane and water vapor) emitted as a result of human activities. 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 greenhouse gases. Worldwide, 27 billion tonnes of carbon dioxide are produced by human activity annually. The physical effect of CO
2 in the atmosphere can be measured as a change in the Earth-atmosphere system's energy balance – the radiative forcing of CO
2.
David Gordon Wilson first proposed a carbon tax in 1973. A series of treaties and other agreements have focused attention on climate change. In the 2015 Paris Agreement, countries committed to reducing their greenhouse gas emissions over the ensuing decades.
Different greenhouse gases 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.
Economic theory
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.
A carbon tax is a form of pollution tax. Unlike classic command and control regulations, which explicitly limit or prohibit emissions by each individual polluter, a carbon tax aims to allow market forces to determine the most efficient way to reduce pollution. A carbon tax is an indirect tax—a tax on a transaction—as opposed to a direct tax, which taxes income. Carbon taxes are price instruments since they set a price rather than an emission limit. In addition to creating incentives for energy conservation, a carbon tax puts renewable energy such as wind, solar and geothermal on a more competitive footing.
In economic theory, pollution is considered a negative externality, a negative effect on a third party not directly involved in a transaction, and is a type of market failure. To confront the issue, economist Arthur Pigou proposed taxing the goods (in this case hydrocarbon fuels), that were the source of the externality (CO
2)
so as to accurately reflect the cost of the goods to society, thereby
internalizing the production costs. A tax on a negative externality is
called a Pigovian tax, which should equal the cost.
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 economy. Climate change is claimed to result in catastrophe (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 climate change mitigation is controversial. Policies designed to reduce carbon emissions could have a non-marginal impact, but are asserted to not be catastrophic.
Two common economic alternatives to carbon taxes are tradable permits/credits and subsidies.
Carbon leakage
Carbon leakage
happens when the regulation of emissions in one country/sector pushes
those emissions to other places that with less 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, can be referred to as "spill-over".
According to one study, short-term leakage effects need to be judged against long-term effects. A policy that, for example, establishes carbon taxes only in developed
countries might leak emissions to developing countries. However, a
desirable negative leakage could occur due to reduced demand for coal,
oil, and gas in developed countries, lowering prices. This could allow
developing countries to substitute oil or gas for coal, lowering
emissions. In the long-run, however, if less polluting technologies are
delayed, this substitution might have no long-term benefit.
Carbon leakage is central to climate policy, given the 2030 Energy and Climate Framework and the review of the European Union's third carbon leakage list.
Border adjustments, tariffs and bans
Policies
have been suggested to address concerns over competitive losses
experienced by countries that introduce a carbon tax versus countries
that do not. Border tax adjustments, tariffs and trade bans have been proposed to encourage countries to introduce carbon taxes.
Border tax adjustments compensate for emissions attributable to imports from nations without a carbon price. An alternative would be trade bans or tariffs applied to such countries. Such approaches could be inadmissible at the World Trade Organization. Case law there has not provided specific rulings on climate-related taxes. The administrative aspects of border tax adjustments have been discussed.
Other types of taxes
Two related taxes are emissions taxes and energy taxes.
An emissions tax on greenhouse gas emissions requires individual
emitters to pay a fee, charge, or tax for every tonne of greenhouse gas, while an energy tax is applied to the fuels themselves.
In terms of climate change mitigation, a carbon tax is not a perfect substitute for an emissions tax. For example, a carbon tax encourages reduced fuel use, but it does not encourage emissions reduction such as carbon capture and storage.
Energy taxes increase the price of energy regardless of emissions. 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 greenhouse gas amounts 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 greenhouse gas emissions are an externality, using
energy services may result in other negative externalities, e.g., air pollution not covered by the carbon tax (such as ammonia or fine particles). A combined carbon-energy tax may therefore be better at reducing air pollution than a carbon tax alone.
Any of these taxes can be combined with a rebate,
where the money collected by the tax is returned to qualifying parties,
taxing heavy emitters and subsidizing those that emit less carbon.
Embodied carbon and architecture
Embodied carbon emissions, or upfront carbon emissions (UCE), are the result of creating and maintaining the materials that form a building. As of 2018, "Embodied carbon is responsible 11% of global greenhouse gas emissions
and 28% of global building sector emissions ... Embodied carbon will be
responsible for almost half of total new construction emissions between
now and 2050."
Steve Webb, co-founder of Webb Yates Engineers, has suggested
that buildings with "high carbon frames should be taxed like
cigarettes," to create a presumption in favour of timber, stone, and other zero-carbon architectural design techniques."
Other reduction strategies
Carpooling
Fuel taxes and carbon taxes encourage carpooling. Carpools
offer the added benefits of helping to reduce commute time, reduce car
accident rates, increase personal savings, and improve quality of life.
Drawbacks include the cost of enforcement, increased police stops, and
political resistance from increased government involvement in daily
life.
Petroleum (gasoline, diesel, jet fuel) taxes
Many countries tax fuel directly; for example, the UK imposes a hydrocarbon oil duty directly on vehicle hydrocarbon oils, including petrol and diesel fuel.
While a direct tax sends a clear signal to the consumer, its
efficiency at influence consumers' fuel use has been challenged for
reasons including:
- Possible delays of a decade or more as inefficient vehicles are
replaced by newer models and the older models filter through the fleet.
- Political pressures that deter policymakers from increasing taxes.
- Limited relationship between consumer decisions on fuel economy and
fuel prices. Other efforts, such as fuel efficiency standards, or
changing income tax rules on taxable benefits, may be more effective.
- The historical use of fuel taxes as a source of general revenue, given fuel's low price elasticity, which allows higher rates without reducing fuel volumes. In these circumstances, the policy rational may be unclear.
Vehicle fuel taxes may reduce the "rebound effect"
that occurs when vehicle efficiency improves. Consumers may make
additional journeys or purchase heavier and more powerful vehicles,
offsetting the efficiency gains.
Social cost of carbon
A carbon tax based on the social cost of carbon (SCC) varies by fuel source. CO
2
production per unit of mass or volume is multiplied by the SCC to
compute the tax. Based on the mean peer-reviewed value ($43 per tonne
coal or $12 per tonne CO
2), the table below estimates the appropriate tax by fuel type:
| Fuel
|
CO
2 emissions
(mass of CO
2 produced)
|
Tax
(per fuel unit)
|
CO
2 emissions
(mass of CO
2 produced)
|
Tax per kWh of electricity
|
| gasoline
|
2.35 kg/L (19.6 lb/US gal)
|
$0.029/L ($0.11/US gal)
|
n/a
|
n/a
|
| diesel
|
2.67 kg/L (22.3 lb/US gal)
|
$0.032/L ($0.12/US gal)
|
n/a
|
n/a
|
| avgas
|
2.65 kg/L (22.1 lb/US gal)
|
$0.032/L ($0.12/US gal)
|
n/a
|
n/a
|
| natural gas
|
1.93 kg/m3 (0.1206 lb/cu ft)
|
$0.023/m3 ($0.00066/cu ft)
|
181 g/kWh (117 lb/million BTU)
|
$0.0066
|
| coal (lignite)
|
1.396 kg/kg (2,791 lb/short ton)
|
n/a
|
333 g/kWh (215 lb/million BTU)
|
$0.0121
|
| coal (subbituminous)
|
1.858 kg/kg (3,715 lb/short ton)
|
n/a
|
330 g/kWh (213 lb/million BTU)
|
$0.0119
|
| coal (bituminous)
|
2.466 kg/kg (4,931 lb/short ton)
|
n/a
|
317 g/kWh (205 lb/million BTU)
|
$0.0115
|
| coal (anthracite)
|
2.843 kg/kg (5,685 lb/short ton)
|
n/a
|
351 g/kWh (227 lb/million BTU)
|
$0.0127
|
The tax per kWh of electricity depends on the thermal efficiency of the related power plant. The table follows the American Physical Society (APS) estimate of 3.0 Wh (10.3 BTU) input per output 1.0 Whe or 33%.
The APS noted that "future plants, especially those based on gas
turbine systems, often will have higher efficiency, in some cases
exceeding 50%.The EDF powerplant in Bouchain, France achieved highest efficiency to date: 62%.
Impact
Research shows that carbon taxes effectively reduce greenhouse gas emissions.
Most economists assert that carbon taxes are the most efficient and
effective way to curb climate change, with the least adverse economic
effects.
One study found that Sweden's carbon tax successfully reduced carbon dioxide emissions from transport by 11%.
A 2015 British Columbia study found that the taxes reduced greenhouse
gas emissions by 5–15% while having negligible overall economic effects. A 2017 British Columbia study found that industries on the whole benefited from the tax and "small but statistically significant 0.74 percent annual increases in employment" but that carbon-intensive and trade-sensitive industries were adversely affected. A 2020 study of carbon taxes in wealthy democracies showed that carbon taxes had not limited economic growth.
A number of studies have found that in the absence of an increase
in social benefits and tax credits, a carbon tax would hit poor
households harder than rich households. Gilbert E.Metcalf disputed that carbon taxes would be regressive in the US.
Implementation
Both energy and carbon taxes have been implemented in response to commitments under the United Nations Framework Convention on Climate Change. In most cases the tax is implemented in combination with exemptions.
Africa
South Africa
A tax on emissions was proposed for South Africa. Announced by Finance Minister Pravin Gordhan. The tax will be implemented starting 1 September 2015 on new motor vehicles. This tax was to apply at the time of sale, and related to the amount of CO
2 emitted by the vehicle. 75 South African Rand were to be added to the price for every gram of CO2 per kilometer the vehicle emits above 120 g/km. The tax applied to passenger cars first and eventually to commercial vehicles. Bakkies (pickup trucks) are to be taxed because of their use as passenger vehicles: this 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 decrease
sales: Powels also questioned the ability to accurately predict CO2 emissions based on engine capacity.
NAAMSA acknowledged the ability of carbon taxes to change consumer
behavior for the betterment of the environment, but argued that this tax
is not transparent enough 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.
Zimbabwe
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 the cost, insurance,
and freight value (as defined in the Customs and Excise Act [Chapter
23:02]), whichever is greater.
Asia
China
The Chinese Ministry of Finance proposed to introduce a carbon tax in 2012 or 2013.
The tax might affect the internal market, as well as many other laws
and regulations. Given the size of the Chinese economy also contribute
importantly to the mitigation of climate change. In 2017, China announced an emissions trading scheme.
India
On 1 July 2010, India introduced a carbon tax of 50 rupees per tonne
($1.07/t) of coal both produced and imported into India. In 2014, the
tax increased the price to ₹100 per tonne ( $1.60/t at $60.5 conversion)Coal powers more than half of the country's electricity generation.
India's total coal production was estimated to reach 571.87
million tons in the year ending March 2010 and was expected to import
around 100 million tons. The carbon tax expects to raise ₹25 billion
($535 million) for the financial year 2010–2011. The clean energy tax
was promised to finance a National Clean Energy Fund (NCEF). Industry bodies did not support the levy.
Under Narendra Modi, the carbon tax was increased form ₹100 per tonne to ₹200 per tonne in the Budget 2015–16. It later rose to ₹400 per tonne.
Japan
In October 2012, Japan introduced a carbon tax to finance renewable energy and energy conservation 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 stated 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 delayed due to major opposition from the Petroleum Association of
Japan (PAJ), other industries, and consumers.
Singapore
On 20 February 2017, Singapore proposed a carbon tax. The proposal was refined to tax large emitters at S$5 per tonne of greenhouse gas emissions. The Carbon Pricing Act or CPA, was passed on 20 March 2018 and came into operation on 1 January 2019.
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
and legislators stated that carbon taxes would increase public
suffering from the recession and that the government should not levy the
new taxes until Taiwan's economy had recovered, opposing the tax.
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. The government planned to subsidize low income families and public transportation with the revenues.
Oceania
Australia
On 1 July 2012, the Australian Federal government introduced a carbon price of AUD$23
per tonne on selected fossil fuels consumed by major industrial
emitters and government bodies such as councils. To offset the tax, the
government reduced income tax (by increasing the tax-free threshold) and
increased pensions and welfare payments slightly, while 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 tax notably helped reduce 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.
New Zealand
In 2005, the Fifth Labour Government proposed a carbon tax 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 apply
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 best-practice standards.
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.[89] In 2008, the New Zealand Emissions Trading Scheme was enacted via the Climate Change Response (Emissions Trading) Amendment Act 2008.
Europe
In Europe, many 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.
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 Scheme (EU ETS) in which the proposed new tax would be calculated in terms of carbon content. The suggested rate of €4 to €30 per tonne of CO2.
Denmark
As of 2002, the standard carbon tax rate since 1996 amounted to 100 DKK per tonne of CO
2,
equivalent to approximately €13 or US$18. The 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 tax applies to all energy users. Industrial companies can be
taxed differently according to the process the energy is used for, and
whether or not the company has entered into a voluntary agreement to
apply energy efficiency measures.
In 1992, Denmark issued a carbon tax, charging about $14 for business and $7 for households, per ton of CO
2. However, Denmark offers a tax refund for energy efficient changes. Most of the money collected would be put into research for alternative energy resources.
Finland
Finland was the first country in the 1990s to introduce a CO2 tax, initially with exemptions for specific fuels or sectors.
Energy taxation was changed many times. 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 placed 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.
Vourc'h and Jimenez proposed that arguments based on competitive
losses be viewed with caution. For example, they suggested that carbon
tax revenues could be used to reduce labour taxes, which would favour
non-energy-intensive industries.
France
In 2009,
France detailed a carbon tax with a levy on oil, gas, and coal
consumption by households and businesses that was supposed to come into
effect on 1 January 2010. The tax would affect households and
businesses, which would have raised the cost of a litre of unleaded fuel
by about four euro cents (25 US cents per gallon). The total estimated
income from the carbon tax would have been between €3–4.5 billion
annually, with 55 percent from households and 45 percent from
businesses. The tax would not have applied to electricity, which in France comes mostly from nuclear power.
On 30 December 2009, the bill was blocked by the French Constitutional Council, which said it included too many exceptions. Among those exceptions, certain industries were excluded that would have made the taxes unequal and inefficient. They included exemptions for agriculture, fishing, trucking, and farming. French President Nicolas Sarkozy,
although he vowed to "lead the fight to save the human race from global
warming", was forced to back down after mass social protests led to
strikes. He wanted support from the rest of the European Union before proceeding.
In 2014, a carbon tax was implemented. Prime Minister Jean-Marc Ayrault announced the new Climate Energy Contribution (CEC) on 21 September 2013. The tax would apply at a rate of €7/tonne CO
2 in 2014, €14.50 in 2015 and rising to €22 in 2016. As of 2018, the carbon tax was at €44.60/tonne. and was due to increase every year to reach €65.40/tonne in 2020 and €86.20/tonne in 2022.
After weeks of protests by the "Gilets Jaunes" (yellow vests) against the rise of gas prices, French President Emmanuel Macron announced on 4 December 2018, the tax would not be increased in 2019 as planned.
Germany
The
German ecological tax reform was adopted in 1999. After that, the law
was amended in 2000 and in 2003. The law grew taxes on fuel and fossil
fuels and laid the foundation for the tax for energy. In December 2019,
the German Government agreed on a carbon tax of 25 Euros per tonne of CO
2 on oil and gas companies. The law will come into effect in January 2021. The tax will be grow to 55 Euros per tonne by 2025.
Netherlands
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. The general fuel tax is collected on all
hydrocarbon fuels. Fuels used as raw materials are not subject to the
tax.
In 1996, the Regulatory Tax on Energy, another 50/50
carbon/energy tax, was 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 initially benefited from preferential rates under this tax,
but the benefit was canceled in January 1997. 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.
In 2007, the Netherlands introduced a Waste Fund that is funded
by a carbon-based packaging tax. This tax was both used to finance
government spending and to finance 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) was set up in 2005. It supports
producers and importers of packaged goods. This decree was signed in
2005 and states that producers and importers of packaged goods are
responsible for the collection and recycling of related 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 found to be ineffective by the Ministry of Infrastructure and the Environment.
It was therefore abolished. Producer responsibility activities for
packaging are now financed based on legally binding contracts.
Norway
Norway introduced a CO2 tax on fuels in 1991. The tax started at a rate of US$51 per tonne of CO2 on gasoline, with an average tax of US$21 per tonne. The tax applied to diesel, mineral oil, oil and gas used in North Sea extraction activities. The International Energy Agency's (IEA) in 2001 stated that "since 1991 a carbon dioxide tax has applied in addition to excise taxes
on fuel." It is among the highest rates in OECD. The applies to offshore oil and gas production. IEA estimates for revenue generated by the tax in 2004 were 7,808 million NOK (about US$1.3 billion in 2010 dollars).
According to IEA's 2005 Review, Norway's CO2 tax is its most important climate policy instrument, and covers about 64% of Norwegian CO2
emissions and 52% of total greenhouse gas emissions. Some industry
sectors were exempted to preserve their competitive position. Various
studies in the 1990s, and an economic analysis by Statistics Norway,
estimated the effect to be a reduction of 2.5–11% of Norwegian emissions
compared to (untaxed) business-as-usual. However, Norway's per capita
emissions still rose by 15% as of 2008.
In attempt to reduce CO
2 emissions by a larger amount, Norway implemented an Emissions Trading Scheme in 2005 and joined the European Union Emissions Trading Scheme (EU ETS) in 2008. As of 2013, roughly 55% of CO
2 emissions in Norway were taxed and exempt emissions are included in the EU ETS. Certain CO
2 taxes are applied to emissions that result from petroleum activities on the continental shelf. This tax is charged per liter of oil and natural gas liquids produced, as well as per standard cubic meter of gas flared or otherwise emitted. However, this carbon tax is a tax deductible operating cost for petroleum production. In 2013, carbon tax rates were doubled to 0.96 NOK per liter/standard cubic meter of mineral oil and natural gas. As of 2016, the rate increased to 1,02 NOK. The Norwegian Ministry of the Environment described CO
2 taxes as the most important tool for reducing emissions.
Republic of Ireland
In 2004, following a policy review, the Irish Government rejected a carbon tax option. In 2007 a Fianna Fáil-Green Party coalition government was formed, and promised to reconsider the matter. In 2010 the country's carbon tax was introduced at €15 per tonne of CO2 emissions (approx. US$20 per tonne).
The tax applies to kerosene, marked gas oil, liquid petroleum
gas, fuel oil, and natural gas. The 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 if they can prove they
are using the gas to "generate electricity, for chemical reduction, or
for electrolytic or metallurgical processes". Partial relief is granted for natural gas covered by a greenhouse gas emissions permit issued by the Environmental Protection Agency.
Such gas 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 (ESRI) estimated costs between €2 and €3 a week per household: a survey from the Central Statistics Office reports that Ireland's average disposable income was almost €48,000 in 2007.
Activist group Active Retirement Ireland proposed a pensioner's
allowance of €4 per week for the 30 weeks currently covered by the fuel
allowance and that home heating oil be covered under the Household
Benefit Package.
The tax is paid by companies. Payment for the first accounting
period was due in July 2010. Fraudulent violation is punishable by jail
or a fine.
The NGO Irish Rural Link noted that according to ESRI a carbon tax would weigh more heavily on rural households.
They claim that other countries have shown that carbon taxation
succeeds only if it is part of a comprehensive package that includes
reducing other taxes.
Carbon Tax was introduced in Ireland in the 2010 budget by the
Green Party/Fianna Fáil coalition government at a rate of €15/tonne CO
2. It was applied to motor gasoline and diesel and to home heating oil (diesel).
In 2011, the coalition government of Fine Gael and Labour raised the tax to €20/tonne. Farmers were granted tax relief.
Sweden
In January 1991, Sweden enacted a CO2
tax of SEK 250 per 1000 kg ($40 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%), and preferred industries
such as commercial horticulture, mining, manufacturing, and pulp and
paper were exempted entirely. As a result, the tax only covers around
40% of Sweden's carbon emissions. The rate was raised to SEK 365 ($60) in 1997 and SEK 930 in 2007.
According to a 2019 study, the tax was instrumental in substantially reducing Sweden's carbon dioxide emissions. The tax is also credited by Swedish Society for Nature Conservation
climate change expert Emma Lindberg and University of Lund Professor
Thomas Johansson with spurring a significant move from hydrocarbon fuels
to biomass. 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."
Switzerland
In January 2008, Switzerland implemented a CO
2 incentive tax on all hydrocarbon fuels, unless are used for energy
Gasoline and diesel fuels are not affected. It is an incentive tax
because it is designed to promote the economic use of hydrocarbon fuels. The tax amounts to CHF 12 per tonne CO
2, the equivalent of CHF 0.03 per litre of heating oil (US$0.108 per gallon) and CHF 0.025 per m3 of natural gas (US$0.024 per m3). Switzerland prefers to rely on voluntary actions and measures to reduce emissions. The law mandated a CO2 tax if voluntary measures proved to be insufficient. In 2005, the federal government decided that additional measures were needed to meet Kyoto Protocol commitments of an 8% reduction in emissions below 1990 levels between 2008 and 2012. In 2007, the CO
2 tax was approved by the Swiss Federal Council, coming into effect in 2008. In 2010, the highest tax rate was to be CHF 36 per tonne of CO
2 (US$34.20 per tonne CO
2).
Companies are allowed to escape the tax by participating in
emissions trading where they voluntarily commit to legally binding
reduction targets. 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, a company that fails to surrender
sufficient allowances must pay the tax retroactively for each tonne
emitted since the exemption was granted.
As of 2009 some 400 companies operated under this program. In 2008 and
2009 the companies returned enough credits to the Swiss government to
cover their CO2 emissions. The companies emitted about 2.6 million tonnes, well below the limit of 3.1 million tonnes. Switzerland issued so many allowances that few emissions permits were traded.
The tax is revenue-neutral because revenues are redistributed to
companies and to the Swiss population. For example, if the population
bears 60% of the tax burden, it receives 60% of the rebate. Revenues are
redistributed to all payers, except those who exempt themselves from
the tax through the cap-and-trade program. The revenue is given to companies in proportion to payroll. Tax revenues that were paid by the population are redistributed equally to all residents.
In June 2009, the Swiss Parliament allocated about one-third of the
carbon tax revenue to a 10-year construction initiative. This program
promotes building renovations, renewable energies, waste heat reruse,
and building engineering.
Tax revenue from 2008-2010 were distributed in 2010.
In 2008, the tax raised around CHF 220 million (US$209 million) in
revenue. As of 16 June 2010, a total of around CHF 360 million
(US$342 million) had become available for distribution.
The 2010 revenue was about CHF 630 million (US$598 million). CHF
200 million (US$190 million) was to be allocated for the building
program, while the remaining CHF 430 million (US$409 million) was to be
redistributed to the population. IEA commended Switzerland's tax for its design and that tax revenues would be recycled as "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
liter on gasoline and diesel (US$0.038 per gallon). However, this
surcharge was supplemented with a CO2 tax on transport fuels
if emissions reductions are not satisfactory. In their 2007 review, IEA
recommended that Switzerland implement a CO2 tax on transport
fuels or increase the Climate Cent surcharge to better balance the
costs of meeting emissions reductions targets across sectors.
United Kingdom
The United Kingdom currently does not have a carbon tax. Instead, various fuel taxes and energy taxes have been implemented over the years, such as the fuel duty escalator (1993) and the Climate Change Levy (2001). The UK was also a member of the European Union Emission Trading Scheme until it left the EU. It has since implemented its own carbon trading scheme.
Central America
Costa Rica
In 1997, Costa Rica imposed a 3.5 percent carbon tax on hydrocarbon fuels.
A portion of the proceeds go to the "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.
North America
Canada
In the 2008 Canadian federal election, a carbon tax proposed by Liberal Party leader Stéphane Dion,
known as the Green Shift, became a central issue. It would have been
revenue-neutral, balancing increased taxation on carbon with rebates.
However, it proved to be unpopular and contributed to the Liberal
Party's defeat, earning the lowest vote share since Confederation. The Conservative party won the election by promising to "develop and implement a North American-wide cap-and-trade system for greenhouse gases and air pollution, with implementation to occur between 2012 and 2015".
In 2018, Canada enacted a revenue-neutral carbon levy starting in 2019, fulfilling Prime Minister Justin Trudeau's campaign pledge. The Greenhouse Gas Pollution Pricing Act applies only to provinces without provincial adequate carbon pricing.
As of September 2020, seven of thirteen Canadian provinces and
territories use the federal carbon tax while three have developed their
own carbon tax programs.
Quebec
Quebec became the first province to introduce a carbon tax.
The tax was to be imposed on energy producers starting 1 October 2007,
with revenue collected used for energy-efficiency programs. The tax rate
for gasoline is $CDN0.008 per liter, or about $3.50 per tonne of CO
2 equivalent.
British Columbia
On 19 February 2008, British Columbia 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 1 July 2008, the
first North American jurisdiction to implement such a tax. The tax was
to increase until 2012, reaching a final price of $30 per tonne (7.2
cents per litre at the pumps). The tax was to be revenue neutral by reducing corporate and income taxes accordingly. The government was to reduce other taxes by $481 million over three years.
In January 2010, the carbon tax was applied to biodiesel. Before the
tax went into effect, the government of British Columbia sent out
"rebate cheques" from expected revenues to all residents. In January 2013, the tax was collecting about $1 billion/year, which was rebated.
The tax was based on the following principles:
- All revenue is recycled through tax reductions – The government
was required to demonstrate how all carbon tax revenue was to be
returned to taxpayers through tax reductions..
- The tax rate increased gradually – to give individuals and
businesses time to make adjustments and respect decisions made prior to
the announcement of the tax.
- Protect Low-income individuals and families – A refundable Low
Income Climate Action Tax Credit helps offset the tax paid by low-income
individuals and families.
- Broad base – Virtually all emissions from fuel combustion are taxed,
with no exemptions except those required for integration with other
climate actions.
- The tax would not, on its own, meet B.C.'s emission-reduction targets.
Many Canadians concluded that the carbon tax generally benefitted the British Columbian economy, in large part because its revenue neutral feature reduced personal income taxes. However some industries complained loudly that the tax had harmed them, notably cement manufacturers and farmers.
Nevertheless, the tax attracted attention in the United States and
elsewhere from those seeking an economically efficient way of reducing
the emission of greenhouse gases without hurting economic growth.
Alberta
In July 2007, Alberta enacted the Specified Gas Emitters Regulation, Alta. Reg. 139/2007, (SGER). This tax
exacts a $15/tonne contribution by companies that emit more than
100,000 tonnes of greenhouse gas annually that do not reduce their CO2 emissions per barrel by 12 percent, or buy an offset. In January 2016, the contribution required by large emitters increased to $20/tonne.
The tax fell heavily on oil companies and coal-fired electricity
plants. It was intended to encourage companies to lower emissions while
fostering new technology. The plan only covered the largest emitters,
who produced 70% of Alberta's emissions. Critics charged that the smallest energy producers are often the most casual about emissions and pollution. The carbon tax is currently $20 per tonne.
Because Alberta's economy is dependent on oil extraction, the majority
of Albertans opposed a nationwide carbon tax. Alberta also opposed a
national cap and trade system. The local tax retains the proceeds within
Alberta.
On 23 November 2015, the Alberta government announced a carbon
tax scheme similar to British Columbia's in that it would apply to the
entire economy. All businesses and residents paid tax based upon
equivalent emissions, including the burning of wood and biofuels. The
tax came into force in 2017 at $20 per tonne.
On 4 June 2019 a carbon tax repeal bill was enacted.
United States
Estimated effect of a carbon tax on sources of United States electrical generation (US Energy Information Administration)
A national carbon tax has been repeatedly proposed, but never enacted. On 23 July 2018 Representative Carlos Curbelo (R-FL) introduced H.R. 6463,
the "Modernizing America with Rebuilding to Kick-start the Economy of
the Twenty-first Century with a Historic Infrastructure-Centered
Expansion (MARKET CHOICE) Act." The Citizens' Climate Lobby (CCL) attempted to create support for a tax. Americans for Carbon Dividends supports the Baker-Shultz Carbon Dividends Plan,
and is supported by companies including Microsoft, First Solar,
American Wind Energy Association, Exxon Mobil, BP, Royal Dutch Shell,
and Total SA.
Internal price on carbon
Many
corporations calculate an "internal price on carbon". Companies use
this internal price to assess the risk of future projects into their
investment decisions. Companies usually assess a higher internal price
when the company a) emits large amounts of CO
2, and b) projects further into the future. Oil company have assets (factories, refineries) with a long lifespan that can be affected by future energy policies.
Internal carbon prices for various US companies
| Company
|
Internal carbon price (US$)
|
CO2 emitted in 2013 (million tonnes)
|
| Exxon Mobil
|
60
|
127
|
| BP
|
40
|
60
|
| Shell
|
40
|
72
|
| Total
|
34
|
47
|
| Ameren
|
30
|
56
|
| Xcel Energy
|
20
|
54
|
| Google
|
13
|
.04
|
| Disney
|
10–20
|
.9
|
| ConocoPhillips
|
8–46
|
24
|
| Microsoft
|
6
|
.05
|
Colorado
In November 2006, voters in Boulder, Colorado
passed what is said to be the first municipal carbon tax. It covers
electricity consumption with deductions for using electricity from
renewable sources (primarily Xcel's WindSource program). The goal is to
reduce their emissions by 7% below 1990 levels by 2012. Tax revenues are collected by Xcel Energy and are directed to the city's Office of Environmental Affairs to fund programs to reduce emissions.
Boulder's Climate Action Plan (CAP) tax was expected to raise
$1.6 million in 2010. The tax was increased to a maximum allowable rate
by voters in 2009 to meet CAP goals. As of 2017 the tax was set at
$0.0049 /kWh for residential users (avg. $21 per year), $0.0009 /kWh for
commercial (avg. $94 per year), and $0.0003 /kWh for industrial (avg.
$9,600 per year). Tax revenues were expected to decrease over time as
conservation and renewable energy expand. The tax was renewed by voters
on 6 November 2012.
As of 2015, the Boulder carbon tax was estimated to reduce carbon
output by over 100,000 tons per year and provided $1.8 million in
revenue. This revenue is invested in bike lanes, energy-efficient
solutions, rebates, and community programs. The surcharge has been generally well-received.
California
In May 2008, the Bay Area Air Quality Management District, which covers nine counties in the San Francisco Bay Area, passed a carbon tax on businesses of 4.4 cents per ton of CO2.
In 2006, the state of California passed AB-32 (Global Warming Solutions Act of 2006),
which requires California to reduce greenhouse gas emissions. To
implement AB-32, the California Air Resources Board proposed a carbon
tax but this was not enacted.
Maryland
In May 2010, Montgomery County, Maryland passed the nation's first county-level carbon tax. The legislation required payments of $5 per ton of CO2 emitted from any stationary source emitting more than a million tons of carbon dioxide per year. The only source of emissions fitting the criteria is an 850 megawatt coal-fired power plant then owned by Mirant Corporation. The tax was expected to raise between $10 million and $15 million for the county, which faced a nearly $1 billion budget gap.
The law directed half of tax revenues toward low interest loans for
county residents to invest in residential energy efficiency.
The County's energy supplier buys its energy at auction, requiring the
plant owner to sell its energy at market value, preventing any increase
in energy costs. In June 2010, Mirant sued the county to stop the tax.
In June 2011 the Federal Court of Appeals ruled that the tax was a fee
imposed "for regulatory or punitive purposes" rather than a tax, and
therefore could be challenged in court. The County Council repealed the fee in July 2012.
Support
Economists and climate scientists
Greg Mankiw, head of the Council of Economic Advisers under the George W. Bush administration, economic adviser to Mitt Romney for his 2012 presidential campaign and economics professor at Harvard University since 1985, has been advocating for increased carbon/oil taxation since at least 1999. In 2006, he founded the Pigou Club of economists advocating for Pigovian taxes,
a carbon tax among them. The club's manifesto states "[h]igher gasoline
taxes, perhaps as part of a broader carbon tax, would be the most
direct and least invasive policy to address environmental concerns."
In 1979, economist Milton Friedman expressed support for the idea of a carbon tax in an interview on The Phil Donahue Show,
saying "...the best way to [deal with pollution] is to impose a tax on
the cost of the pollutants emitted by a car and make an incentive for
car manufacturers and for consumers to keep down the amount of
pollution."
In 2001, environmental scientist Lester Brown, founder of the Worldwatch Institute and founder and president of the Earth Policy Institute,
outlined a detailed "tax shifting" structure that would not lead to an
overall higher tax level: "It means reducing income taxes and offsetting
them with taxes on environmentally destructive activities such as
carbon emissions, the generation of toxic waste, the use of virgin raw
materials, the use of non-refillable beverage containers, mercury
emissions, the generation of garbage, the use of pesticides, and the use
of throwaway products... activities that should be discouraged by
taxing."
Former US Federal Reserve chairman Paul Volcker
suggested (6 February 2007) that "it would be wiser to impose a tax on
oil, for example, than wait for the market to drive up oil prices. A tax
would give the government 'some leverage that you can use for other
things.'", supporting a carbon tax.
NASA climatologist James E. Hansen has argued in support of a carbon tax.
Citizens' Climate Lobby advocates for carbon tax legislation (specifically a progressive fee and dividend
model). The organization has about 165 chapters in the United States,
Canada, and several other countries including Bangladesh and Sweden.
Monica Prasad, a Northwestern University sociologist, wrote about Denmark's carbon tax in The New York Times in 2008.
Prasad argued that a critical component for Denmark's success was that
the revenues subsidized firms to switch to renewable energy.
According to economist Laura D'Andrea Tyson,
"The beauty of a carbon tax is its market-based simplicity. Economists
since Adam Smith have insisted that prices are by far the most efficient
way to guide the decisions of producers and consumers. Carbon emissions
have an 'unpriced' societal cost in terms of their deleterious effects
on the earth's climate. A tax on carbon would reflect these costs and
send a powerful price signal that would discourage carbon emissions."
The American Enterprise Institute, Environmental economist Jack Pezzey, economist Jeffrey Sachs (director of the Earth Institute of Columbia University), Yale economist William Nordhaus support carbon taxes.
In January 2019, economists published a statement in the Wall Street Journal
calling for a carbon tax, describing it as "the most cost-effective
lever to reduce carbon emissions at the scale and speed that is
necessary." In February 2019, the statement had been signed by more than
3,000 U.S. economists, including 27 Nobel Laureates.
Others
- Carl Pope, former executive director of the Sierra Club, supports a carbon tax over cap-and-trade
because employers will know exactly what their emissions cost, and
because cap-and-trade (with grandfathered permits) rewards those who
have the highest emissions.
- In 2008, Rex Tillerson, then CEO of Exxonmobil, 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 said that he hoped that the revenues from a carbon tax
would be used to lower other taxes.
- In 2016 in Washington state, the Sierra Club,
the Washington Environmental Council, Climate Solutions, and the
Alliance for Jobs and Clean Energy opposed a proposed tax of $25 per
tonne on fossil fuels arguing that the enactment would undermine state
finances.
In 2018, they instead supported a $15 per tonne tax in that state,
along with many other environmental groups, in part because the proceeds
would fund projects that would steer the state away from fossil fuels.
- In 2015, BG Group, BP, Eni, Royal Dutch Shell, Statoil, and Total sent an open letter to the UNFCCC calling for carbon pricing and eventually link it into a global system.
- A 2019 International Monetary Fund report stated that "a global tax of $75 per ton by the year 2030 could limit the planet's warming to 2 degrees Celsius."
- CEOs supporting carbon taxes include Fred Smith (FedEx); James Owens (Caterpillar), Paul Anderson (Duke Energy), Elon Musk (Tesla and SpaceX).
- Companies include Unilever and Nestlé
Alternatives
As of 2015, developing countries were responsible for 63% of carbon emissions. Various barriers stand in the way of developing countries from adopting plans to slow carbon emissions, including a carbon tax. Developing countries often prioritize economic growth over lower emissions. Nuclear power is under development in multiple countries as an emissions-free energy source.
Wind energy and solar energy are other alternatives to fossil fuels. Wind turbines are a sustainable and renewable source of power.
Emission trading
Cap and trade is another approach. Emission levels are limited and
emission permits traded among emitters. The permits can be issued via
government auctions or by offered without charge based on existing
emissions (grandfathering). Auctions raise revenues that can be used to
reduce other taxes or to fund government programs. Variations include setting price-floor and/or price-ceiling for permits. A carbon tax can combined with trading.
A cap with grandfathered permits can have an efficiency advantage
since it applies to all industries. Cap and trade provides an equal
incentive for all producers at the margin to reduce their emissions. This is an advantage over a tax that exempts or has reduced rates for certain sectors.
Both carbon taxes and trading systems aim to reduce emissions by creating a price for emitting CO
2. In the absence of uncertainty both systems will result in the efficient market quantity and price of CO
2. When the environmental damage and therefore the appropriate tax of each unit of CO
2 cannot be accurately calculated, a permit system may be more advantageous. In the case of uncertainty regarding the costs of CO
2 abatement for firms, a tax is preferable.
Permit systems regulate total emissions. In practice the limit
has often been set so high that permit prices are not significant. In the first phase of the European Union Emissions Trading System, firms reduced their emissions to their allotted quantity without the purchase of any additional permits.
This drove permit prices to nearly zero two years later, crashing the
system and requiring reforms that would eventually appear in EUETS Phase
3.
The distinction between carbon taxes and permit systems can get
blurred when hybrid systems are allowed. A hybrid sets limits on price
movements, potentially softening the cap. When the price gets too high,
the issuing authority issues additional permits at that price. A price
floor may be breached when emissions are so low that noone needs to buy
a permit. Economist Gilbert Metcalf has proposed such a system, the Emissions Assurance Mechanism, and the idea, in principle, has been adopted by the Climate Leadership Council.
Views
A 2018
survey of leading economists found that 58% of the surveyed economists
agreed with the assertion, "Carbon taxes are a better way to implement
climate policy than cap-and-trade," 31% stated that they had no opinion
or that it was uncertain, but none of the respondents disagreed.
In a review study Fisher et al. concluded that the choice between an international quota (cap) system, or an international carbon tax, remained ambiguous. Lu et al.
(2012) compared a carbon tax, emissions trading, and
command-and-control regulation at the industry level, concluding that
market-based mechanisms would perform better than emission standards in
achieving emission targets without affecting industrial production.
James E. Hansen argued in Storms of My Grandchildren and in an open letter to then President Barack Obama
that emissions trading would only make money for banks and hedge funds
and allow 'business-as-usual' for the chief carbon-emitting industries.
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