Thursday, March 15, 2007

Carbon Taxes

One of the best ways to immediately reduce consumption and deal with global warming is to tax products based on how much carbon is emitted into the atmosphere during their production, use, and disposal. This is in contrast to the voluntary “cap and trade” system, which sets a mandatory maximum for emissions and then allows organizations to buy and sell “allowances” representing tons of carbon they can emit.

According to the Carbon Tax Center, the price elasticity of carbon-based energy is about 40 percent over ten years. This means that if prices increased 100 percent (doubled) over ten years (the time required for required infrastructure changes) total consumption would drop 40 percent below the amount of fuel that could have been bought before the price increase. If carbon emissions must drop 80 percent over ten years, then we must increase the price by 200 percent (adding that much tax).

A major issue involving carbon taxes, as with any taxes, is what to do with the money collected. The Carbon Tax Center recommends either tax shifting (offsetting the tax increase with a decrease in other taxes) or distributing the proceeds equally to everyone who paid the taxes. Another option, spending the money on developing alternative energy, has been generally dismissed because it creates too much of a financial burden on people. I have concerns with the first two choices. Other taxes, which encourage or discourage various activities, could be sabotaged by tax shifting (changes to those taxes should be decided on their own merits). Giving the money back would encourage consumption of other kinds, continuing (albeit at a lower rate) the destruction of the biosphere. The last choice is, in my opinion, the best: it discourages further consumption and accelerates the development of alternatives.

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