Carbon Taxes

      With the ongoing Paris talks, many ideas are being floated to combat changing climates. Many are complicated and technical, others involve quotas and strict regulation. A straightforward way to address consequences caused by human actions would be to change those human actions. Economics shows that generally, when an activity becomes more costly, it is done less. Thus, to reduce the burning of fossil fuels and the emission of carbon, tax carbon, a lot. Small taxes on carbon emissions, and activities that promote it, such as Mexico's $1 per ton, would be nice efforts to raise a little cash for governments. To effect real change, much larger rates must be implemented, particularly given the currently low base prices of oil and gas.

      The effects of taxing carbon would be straightforward. Higher costs of crude oil, coal, and natural gas would reduce consumption of gasoline and electricity. It would make renewables more attractive for many people, and spur investment in alternative forms of energy, as well as in more efficient appliances and products. Even for those whom a carbon tax does not make renewables profitable, taxing emissions would encourage many firms to switch from coal fired plants to gas fired ones, which produce far fewer emissions. This would have a huge impact, since coal fired plants make up such a large portion of electricity generation world wide, while China burned 3.8 billion tons in 2011, and is expected to grow. BP has estimated that switching 1% of the world's coal fired plants to gas fired would cause an equivalent carbon emission decrease to increasing the amount of renewables by 11%. A carbon tax would certainly help nudge energy companies in that direction.

      Beyond merely reducing global warming and hopefully keeping temperature low, there are other reasons for adopting a carbon tax. Air pollution is harmful to human health, as emissions release tons of particulates, tiny particles that clog the lungs and cause a number of ailments, and a variety of harmful chemicals that humans inhale. In India, research done by Greenpeace, the Conservation Action Trust, and Urban Emissions recons that coal emissions kill at least 80,000 people, and result in heal care costs of at least $3.3 billion. The health benefits alone of reduced emissions would, some argue, justify a carbon tax of $30 per ton. Of course, due to different needs, local costs, or economic conditions, using a tax to establish a world carbon tax may be very unsustainable. More likely, prices will remain different between region or countries.

      To be sure, such a high tax would not be without costs. Higher prices in the short run will hurt consumer demand for many goods, reducing consumption. However, the case is easy to make that the long run benefits of moving quickly to a cleaner and more energy efficient society will outweigh the short term pains of change.

By: Jonathan Wood