Why a carbon tax would be effective and why it matters

First of all, what is a carbon tax? A carbon tax is a tax on fossil fuels with the intention of reducing carbon dioxide emissions. A carbon tax is very similar to an emissions tax in that it requires emitters to pay a fee for every tonne of greenhouse gas released into the atmosphere.

Plenty of economists suggest a carbon tax as a good method for cutting down on carbon emissions. Some studies say that a $25 tax would cut carbon emissions by 10% per year. The reason for this is because of basic economics: a carbon tax disincentives companies from emitting a lot of carbon because they have to pay more and no one wants to pay more. While simple, it holds true. An analysis by Donald Marron, former acting director of CBO, finds positive change in the forty countries using carbon taxes.

The positive externality found with a carbon tax is an increased incentive for companies to go green. A study conducted by REMI found that with a carbon tax, coal could be phased out entirely by 2025. Economists predict that because the transition to green energy would be net less expensive in the long run than continuing use of fossil fuels, plenty of companies on the brink of transitioning would actually follow through. The New York Times reports that Ireland’s wind industry boomed after a carbon tax. Similarly, in Australia, renewable energy usage rose by 28%. A study by Copenhagen Economics found that a 1% increase in tax share leads to a 2.4% increase in patenting which indicates that green energy is a possible future.

The issue then is it fast enough? A recent IPCC study reported that we need to massively cut down on emissions by the end of the following twelve years. Moreover, the study reported that it would require an international effort, not just by the US but by multiple countries. Luckily, cherry-picking studies indicate we have some reminiscence of hope. Jerry Taylor, from  Niskanen Center, supports that countries representing 54% of the world’s emissions who have expressed support for a carbon tax but haven’t implemented one. This corroborated by the study that reports complete phase-out by 2025 indicates there still may be hope left.