Carbon Tax - Research Paper Example

ID Number: Carbon Tax - discussion of the topic as a problem or potential solution by communicating ideas explaining the environmental topic Introduction Carbon tax is a type of tax that is levied on mainly the carbon contents in fuels. Carbon tax is a form of carbon pricing and is imposed as a postnatal cost effective measure for reducing the environmental impacts like greenhouse gas emissions. Since, the combustion of fuels containing carbon releases greenhouse gases which have derogatory effects on the ecological and environmental systems of the earth, therefore, a tax on these kinds of fuels is imposed so as to control the effects of the carbon footprints on the environment. From an economic point of view, carbon tax is a form of Pigovian tax which is imposed with the aim of addressing the problems related to the emission of greenhouse gases. This is done by ensuring that the emitters of these greenhouse gases are liable to pay the social costs of their activities through the compulsory payment of carbon tax. Many countries have already implemented the energy taxes or carbon taxes that are directly related to the carbon contents of different fuels. However, different views have been presented as a response to the levying of carbon taxes. While some scholars and practitioners are of the view that imposing carbon taxes is a solution to the existing environmental hazards caused by the greenhouse gas emissions, the opponents of carbon tax have argued that the imposing of carbon taxes may lead to additional issues of business functioning and may have little contribution towards solving the problems of the environmental effects of the combustion of fuels. Thus, the main research question formulated for this research paper is given as follows Is carbon tax a potential problem or a solution to the different environmental issues related to greenhouse gas emissions caused by the combustion of different types of fuels and energy resources? Literature review Carbon tax is the tax imposed on the carbon dioxide emissions and is formulated on the basis of the negative externalities principle of economics, Since, the combustion of energy resources cause the emission of green house gases which create pollution in the environment, therefore, the emitters of these greenhouse gases are liable to pay the social costs associated with the environmental pollution created by their activities. According to the work of Morris, McKibbin and Wicoxen (2009), the levying of carbon tax is considered to be necessary in the present scenario because it would help to price the fuels equitably and would thus, solve the problem of the excessive combustion of fuels that produce carbon emissions and other greenhouse gases (Morris, McKibbin and Wicoxen 104). As per the view of Metcalf and Weisbach (2009), the imposition of carbon tax is expected to solve the problems related to the use of energy resources which produce excessive carbon footprints (Metcalf and Weisbach 499-500). Many countries across the world including the United States of America, United Kingdom, the Asian countries like China, India, Taiwan, South Korea and Japan have levied carbon taxes on different economic sectors. Also, carbon tax is to be imposed in South Africa from September 2015. However, carbon tax has not yet been imposed on the emitters in the Middle Eastern countries. As discussed by Nordhaus (2009), the carbon taxes are not imposed across the whole of the United States of America but slowly, the tax is being imposed in many states and provinces where the use of carbon producing fuels for industrial purposes is maximum (Nordhaus 44). The proposal of establishing a system of harmonized carbon taxes are being made in different parts of the world. In a harmonized carbon taxation system, the country that will be setting the taxes would be entitled to keep all the revenues incurred from these taxes. The proponents of a harmonized carbon tax system like Dinan and Rogers (2002 ) have proposed that all the participating countries in this system would be subjected to a common carbon tax rate which will help to achieve cost effectiveness in the long term scenarios (Dinan and Rogers 56-60). Nevertheless, the opponents of the harmonized carbon tax system have identified that there may be a number of constraints and problems associated with this kind of taxation system. One major criticism made against the harmonized carbon tax system is that in this taxation format, the developed as well as the developing countries would be subjected to the same carbon tax rate which is not a justified and fair idea. This is because, the relative level of responsibility and welfare towards the environmental and climatic problems is higher for the developed countries as compared to the developing countries because the level of industrialization, the availability of resources and the use of energy sources are more in the developed nations that in the developing nations. As such, the developed counties would not have major incentives in adopting a uniform carbon tax rate. Helm (2005) has argued that another major problem with this system of carbon taxation is that the governments of different countries may attempt to decrease or neutralize the impacts of the carbon taxes payable on specific economic an industrial sectors of the countries (Helm 95). Also, Stern (2007) has discussed that in the current scenario of the presence of the distortions in the taxation formats, the idea of a harmonized carbon tax system may be politically infeasible in most of the economies across the globe (Stern, 544). Finding and analysis Issues There are many aspects that should be considered to understand the potential issues and solutions related to the environmental problems and the role that the imposition of carbon tax will play in solving these problems. The examination of the effectiveness of the carbon tax system can be done by considering the benefits and effectiveness of this taxation policy in solving the environmental impacts of the use of different energy resources in industries, household and different industrial sectors. A significant question in this aspect is that how fast and to what degree the carbon taxes will be able to control the carbon dioxide emission levels. Also, the administration of the carbon taxes in the real world scenario is likely to be faced by a number of challenges and restraints. These include the political distortions present in different nations, the difference between the usage of energy fuels in developed and developing countries and the level of social and environmental responsibility that each of the countries are interested to display. The pricing of carbon can disproportionately impact different sections of an economy. While the carbon taxation imposed on the economic sectors are likely to control the prices of the carbon fuels, the carbon taxation without revenue returns may also impact the lower income households spending to a huge extent. If the government of any country wants to prevent these impacts of carbon pricing of the middle and low income groups of households, then they would have to intrigue the tax shifting policies which may burden the economy in the long term. In case, the uniform carbon tax rates are imposed on different industries, then there may be scopes created for the non carbon taxing nations to gain unfair advantages in the trade practices and revenue generation which may affect the global economy by misbalancing the trade advantages available to each of the countries. Therefore, the border tax adjustments would remain a major concern for all the governments that are planning to levy the carbon taxes on the emitters functioning in various economic segments. Solutions The carbon taxes are likely to work as a cost effective measure for controlling and reducing the levels of greenhouse gas emissions. This tax, being a Pigovian tax would help to address the issues related to the emitters of the greenhouse gases not showing adequate environmental responsibilities and paying the social costs for their activities and operations. The regressive effects of the carbon taxes that are likely to affect the low and middle income groups in a disproportionate manner can be solved by using proper fossil fuel subsidies that would help to control the level of expenditure on fossil fuels as done by these groups of people. The worldwide establishment of fossil fuel subsidies can be identified as a main solution for the problem of disproportionate impact of the carbon taxation policies on the low income group people. Currently, there is approximately USD 50 billion worth of fossil fuel subsidies available annually across the world. The problem related to the environmental regulations like carbon taxes that the firms might move to tax free locations and employment opportunities would be reduced can be solved by ensuring that the carbon taxes are uniformly established. The implementation of a harmonized carbon tax policy seems to be the most appropriate solution for addressing this issue while at the same time ensuring that the environment is adequately protected against further damages. If imposed properly the carbon taxes may function in a more useful way than the direct government regulations and can lead to higher employment opportunities because of the uniformity created. Also, the environmental concerns and responsibilities can be sufficiently met with in every sector of the nation through carbon tax policies because the emitters would be more conscious about the way they use the natural energy resources. In most cases, the costs of the carbon prices are passed on from the firms to the customer groups. Also, the social and environmental costs that are to be borne by the energy producers are often not paid and as such, the harmful effects of the greenhouse gas emissions on the environment cannot be controlled and compensated for. The revenues from the carbon taxes are likely to act as a source for the neutralization of the derogatory effects of the emission from the combustion of fuels. The ultimate progressive return from the carbon taxes can help to adjust the regressive nature of these tax policies. The carbon taxes if imposed properly would reduce the carbon emissions at the specific levels and rates that are required to ensure that the atmospheric concentrations of carbon dioxide are stabilized in the future years and thus, would help to prevent any destructive changes in the climate. However, while deciding on the carbon tax policies, the respective governments should consider the marginal economic and social costs associated with the imposition of these taxes for the emission producers as well as the ultimate consumers of energy sources. The carbon taxes are necessary in the present environmental and economic conditions because the marginal cost of carbon dioxide emissions are increasing continuously. So, in order to prevent future hazardous impacts of uncontrolled carbon dioxide emissions, the carbon taxes should be established as a strict measure to protect the environment against the greenhouse pollution effects. The alternative to the carbon taxes are the caps set on the level of greenhouses gas emissions in which specific upper limits are set for the allowed level of the green house gas emissions and the permits for polluting are auctioned to the emitters. But unlike the cap and trade system, the carbon taxes can raise revenues which may be used by the governments of the respective countries to settle the environmental issues and combat the ecological hazards caused by these emissions. Also, the necessity of paying the taxes will increase the incentive on the part of the emitters to reduce the level of emissions caused by their operations. Conclusion Thus, it can be concluded that carbon tax is extremely necessary for controlling the carbon prices as well as the pollutant emissions from carbon combustion. Taxing carbon would ensure that the energy efficiency and the use of renewable sources of energy are boosted which will help to reduce the negative effects on the environment like global warming, greenhouse effects and pollution. Though both the carbon tax policies and the cap and trade regulations create a need for the emitters to restrict their level of greenhouse gas emissions and take up the accountability for the social costs of their operations, yet the carbon taxes are seen as a more efficient way of controlling the emission levels and pricing the fuels equitably. Thus, these tax policies can be identified to be more feasible and beneficial ways of controlling the environmental impacts of greenhouse gas emissions without affecting the industrial productions and household usages of energy sources to a great extent. Works Cited Dinan, Terry. & Diane Lim Rogers. Distributional Effects of Carbon Allowance Trading: How Government Decisions Determine Winners and Losers. National Tax Journal, 55 (2): 56-60. 2002. Print. Helm, Dieter. Climate change Policy: A Survey. In: "Climate Change Policy". Oxford: Oxford University Press. 2005. Print. Metcalf, Gilbert. & David Weisbach. The Design of a Carbon Tax. Harvard Environmental Law Review, 33 (2): 499–500. 2009. Print. Morris, Adele., Warwick J. McKibbin. & Peter J. Wicoxen. A Climate Diplomacy Proposal: Carbon Pricing Consultations. Washington: The Brookings Institution, Washington. 2009. Print. Nordhaus, William. To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming. Review of Environmental Economics and Policy, 12 (1):26-44. 2009. Print. Stern, Nicholas. The Economics of Climate Change. Cambridge: Cambridge University Press. 2007. Print. Read More