Carbon Tax Policy Analysis - Essay Example

Carbon Tax Policy Analysis

Introduction

Carbon tax policy is policy made to levy corrective taxes on the fuels containing carbon. Since there is a strong direct relationship between the carbon content in the fuel and the amount of the carbon dioxide that is emitted when they are burned, the carbon tax is effectively the corrective tax levied on the carbon (ii) oxide emissions from the combustion of the fossil fuels. Fuel sources like gas, oil and coal have hydrogen and carbon atoms that burn to produce energy. Under complete combustion of these fuels, carbon dioxide is produced as a by-product (Hsu, 2011). Carbon dioxide is an innocuous gas, and when it rises in the atmosphere, it traps heat that is re-radiated from the Earth. This aspect results in global warming. To reduce this effect, the carbon tax policy is can regulate the use of the carbon-containing fuels. Different fuels sources containing carbon emit different amounts of carbon dioxide. The least amount of carbon dioxide is emitted from the natural gas while coal emits most carbon dioxide gas and the gasoline produces average carbon dioxide.

The coal produces thirty percent, more carbon dioxide per unit quantity as compared to oil and eighty percent more that natural gas. The carbon tax policy would apply these proportions where it levies natural gas lower than petroleum products and much lower than the coal. The carbon tax policy is of great importance to the nation’s economy and society as a whole. The carbon tax policy helps people and businesses to lead healthier lives, live safer and contribute to less pollution of the environment (Marron & Morris, 2016). Again the policy helps the government to raise extra revenue to sustain its growth. Again, the corrective tax from the carbon-containing fuels can be used by the government for various public activities. The corrective tax revenue can be treated like any other revenue and use it to boost spending or cut taxes unrelated to the objectives of the carbon tax or even reduce borrowing. In this perspective, the government would use ordinary budget processes. For instance, the Berkeley city in California does this with its soda tax and France directs its corrective tax revenue to the international aid.

Economic underpinning of the Carbon Tax

The corrective carbon tax on the fuels has related cost. Some new burdens are imposed on the consumers who use them or may even switch to more costly alternatives and businesses will have lower profits and will also pay their workers lower rates. Again the corrective carbon tax can slow down the overall economic activity and spread the burden to the entire nation. Since the carbon taxes will affect over eighty-five percent of the energy used in the nation, it will affect the vast majority of the economic activity of the nation. The nuclear and hydropower contributes to eleven percent of the energy used in the US, and the other four percent come from renewable sources (Marron & Morris, 2016). The nation economy can turn to more attractive hydropower and nuclear energy, but the major setbacks arise because sites, to build new nuclear plants and large hydroelectric dams face political obstacles.

The carbon tax needs to set an optimal level where it accounts for the climate change and the nation's economy, which is an impossible task. The central planners cannot are unable to aggregate the information necessary to help in making economically efficient choices. The Congress cannot make an optimal tax because of unavailability of the needed information. With greenhouse effect and lack of necessary information which is further compounded by the unpredictable climate change and partisan politics, it is hard to optimize the carbon tax. The cost of the carbon tax policy will result in increased costs to almost everything that is manufactured, or transported by fuel powered machinery.

The carbon tax that is set a wrong level will result in economic harm. According to one of the carbon taxes proponents, Professor William Nordhaus noted that when there will be a deviation from the worldwide participation, the costs to achieve the global improvement will drastically rise. The Nordau’s economic model shows that an ambitiously planned policy can swamp the anticipated benefits of the efficiently calibrated goal. The same economic models show that proposal to eradicate carbon dioxide emissions by ninety percent by 2050 would make the world poorer by over $21 trillion (Hsu, 2011). Considering the British Columbia, it is also important to note that it cement industry has faced a big challenge as it has already lost a third of the market share to the imports due to imposed carbon taxes. Again farmers in British Columbia have struggled to compete with non-carbon-taxed jurisdictions on rebates from the government.

The carbon tax policy may force many of the industries in America to leave. The energy costs are major expenses incurred by heavy industries. The natural gas prices in America are highest globally, although that nation has the sixth largest reserve of the natural gas. The high price has led to the loss of over three million jobs in the manufacturing industry. The carbon taxes will raise the cost of natural gas since industries will use it as an alternative to coal to produce electricity, which translates to increased costs of electricity for the companies (Marron & Morris, 2016). It will also be more troublesome to the chemical companies that use natural gas as feedstock and source of energy. The increased natural gas prices may make such companies pursue cheaper options overseas and offshore, thus, decreasing American jobs. The reduced American jobs due to the relocation of the industries will negatively affect the nation's economy.

Carbon Tax Policy Prescription

Economists have argued that the carbon tax policy reduces environmental pollution and other externalities, which reduce the costs spent by the government in addressing effects of climate change due to global warming. The corrective carbon tax may encourage the households and firms to develop alternative energy sources that have less impact on the environment and have less financial requirement on addressing its consequences. The carbon tax gives extra revenue that can be used by the government to fund transportation projects, which will reduce the government expenditure on maintaining such projects from its national budget (Hsu, 2011). The funds obtained from the carbon tax can be used to counter the macroeconomic drag.

Various opportunities for carbon dioxide emission reduction that are not utilized can be ventured through funding by the revenue gained from the carbon tax. This aspect will ensure that the government will spend less in addressing the effect of the global warming in the society. The carbon tax can be used to reduce or cut the taxes levied on other aspects like corporate or personal income taxes. This step will improve the nation's economy and the per capita income. For instance, the British of Columbia that has been using the carbon tax has been able to cut the corporate and income taxes by offsetting the revenue it gets from the carbon tax. This aspect is not the case in Nevada State because it has not imposed the carbon tax policy (Kreiser, Sirisom, & Ashiabor, 2011). This carbon tax has made British Columbia to have the lowest corporate tax in the Northern America.

The revenue obtained from the corrective carbon tax can be used to offset new burdens faced by the government created by the carbon tax. For instance, when the energy price has increased the food, and other products squeeze the household budgets especially the low-income families. The expansion in transfer programs or tax cuts may offset the burdens while leaving no impact on the incentives. The government can also use the corrective tax from the carbon-containing fuels to cover costs related to the taxed activities. For instance, the government can assist the victims of pollution or fund public services or other external costs (Marron & Morris, 2016). In the US, the carbon tax from coal can be used to assist the individuals who have developed the lung disease and reduce government burden on sourcing funds to treat these victims. The fuel taxes that are paid by the airplane passengers, maritime shippers and drivers assist in creating and maintaining the associated infrastructure.

Again the revenue gained from the carbon tax can will be used to create incentives for the corporations that produce clean energy like wind power and nuclear energy. These incentives will help in producing more creating more clean energy that will reduce the amount of carbon dioxide emitted into the atmosphere which will consequently reduce the amount of government spending on funding the projects that are aimed at reducing the harmful effects of the global warming (Hsu, 2011). Again the carbon tax revenue will reduce the public borrowing, hence, reducing the public financial burden. The British Columbia, a Canadian province is an illustration how the carbon tax policy does not impede the economic activity of a nation.

The negative impacts resulting from the use of carbon-containing fuels in the state economies like Nevada is great as compared to the province of British Columbia. Since Nevada has not imposed the carbon tax, the state will spend much on addressing environmental effects and treating individuals who are victims of the carbon dioxide emissions (Kreiser, Sirisom, & Ashiabor, 2011). British Columbia will incur less on putting measures to curb the effects of climate change due to the carbon dioxide emissions as compared to Nevada State that does not regulate the use of the carbon-containing fuels. Though the carbon tax policy will not eliminate but will typically reduce the problem, it will also reduce the government spending on reducing environmental pollution.

Conclusion

The corrective carbon tax will inspire Americans to live healthier lives and pollute less. The revenues generated from the policy will fund other projects and reduce the government burdens. However, it is important to note the energy is the backbone of the nation's economy and the policies that hike the energy price may adversely affect the economy. This time, may not be the right time to initiate and implement an economically disastrous policy such as carbon taxes. For now, Americans require an effective economy that will help in reversing the recession and at the same time improve the lives of the American workers. If the nation imposes the carbon tax policy, it will just make it harder to counter the recession.

When the nation completely reverses the current recession it will be the right time to impose the carbon policy. The government will be able to benefit from the extra revenue generated from the corrective tax and fund various projects that will result in economy growth. The government will also offset burdens that will be created by the carbon taxes, pursue goals that intended by the carbon tax policy and compensate individuals who bear costs from the carbon tax policy.