What is a carbon tax?
The Carbon Tax Center defines a carbon tax as “a tax on the carbon content of fuels – effectively a tax on the carbon dioxide emissions from burning fossil fuels”. A carbon tax is based on the polluter pays principle, which current fossil fuel usage does not take into account. Companies and consumers currently do not pay for the costs of global warming due to their use of fossil fuel.
With the carbon tax, it is likely that businesses and individuals would be more aware of their energy usage, find ways to conserve energy, develop more efficient products, and take various actions to reduce their energy usage so that they pay less carbon taxes.
The revenue from the carbon taxes can be used to fund more energy reduction projects such as energy audits, subsidies for hybrid and electric cars, making buildings energy efficient, planting more trees, etc.
In addition, “a global carbon tax would be easier to negotiate”, as pointed out by N. Gregory Mankiw in The New York Times. Each country can use the tax to raise revenue and finance projects, without foreign interference. A carbon tax is also easier to implement as governments have always used taxes to raise revenue and reduce the consumption of undesirable goods such as cigarettes and liquor.
However, setting a carbon tax is not easy for the government because increasing taxes is always a political minefield and voters dislike taxes. But there is always the exception as shown in the city of Boulder, where residents passed the first carbon tax in the United States.