8 Main Pros and Cons of the Carbon Tax

You may not know it, but you are contributing to higher production of carbon dioxide, one way or another. So, whatever environmental issues the world is suffering right now, you are likely to have a hand in it. Yes, you could’ve caused global warming, along with the rest of the world. Because the adverse effects of CO2 emissions concern everyone and not just select individuals, everyone should take immediate action to avoid a situation where life, as we know it, will no longer exist.

One of the initiatives that the government has introduced is the carbon tax. This means that whoever is causing environmental costs must pay the social cost of their actions in full. A fuel company that releases CO2 during the production process, for instance, must pay taxes that are equivalent to the amount of social damage the emissions are likely to cause. It is designed to internalize the externality, a concept similar to the “polluter pays principle”. At the 1992 Rio summit, carbon tax was incorporated into international law.

While the federal carbon tax would raise large amounts of money for the government and reduce emissions at the same time, it will cause an increase in the prices of many goods and services. Companies are likely to pass on to their consumers the bigger tax rate that they have to pay. In the end, carbon tax is not all good.

List of Pros of Carbon Tax

1. Environment Conservation
The main purpose of carbon tax is to ensure that companies or organizations that emit huge amounts of CO2, cut down if not eliminate their emissions, minimizing pollution and the effects of global warming in the process. When everyone takes part in this noble cause, whatever damage the environment is experiencing at the moment can be lessened and pave the way for possible healing. Maybe then, the environment would last longer and people would still have a planet to live in for the next millennia.

2. Alternative Resources
With carbon taxes causing an increase in business’ overheads, companies will be encouraged to find a more efficient way of manufacturing products or delivering services, because the alternative would take a toll on their finances. Think of cars powered by electricity or hydrogen fuels. What is even better is that this will result in more ingenious and environment friendly ideas in various industries, from agriculture to logistics. By the time the post-oil economy arrives, transition would be easier and faster for everyone concerned.

Rather than rely heavily on nuclear power and fossil fuels, electricity will be generated from alternative sources, which is less polluting and more eco-friendly. This may also encourage people to walk or cycle to work, and promote a healthy lifestyle at the same time.

3. Revenue Increase
Carbon tax can help increase revenue significantly. In a report by the Congressional Budget Office in 2011, “a $20 per ton carbon tax would raise nearly $1.2 trillion over the next decade”. This will open plenty of opportunities to produce green electricity that will solve any energy need that is less sustainable and more damaging to the environment.

This could encourage a growing green movement that can have a positive impact to the community. The same revenue can be used to repair any damage caused by pollution or natural disaster. Who would not want this? Carbon tax can be instrumental to reverse the damage caused by CO2 on the environment, especially now that it is still possible.

4. Social Efficient Income
Remember that people and companies pay the social cost of excess CO2 through carbon tax, which means they will be more socially aware of what the emissions can mean to the world and their business. Electrical power plant will then use green sources to produce energy, and people would be less dependent on fuel or oil.

List of Cons of Carbon Tax

1. Production Shift
It is possible that companies will move production or their business to places that have lower or no carbon taxes, also known as “pollution havens”. This could have an economic impact, especially when trade-offs would fail to help the economy in general.

When businesses relocate, for instance, a lot of workers would lose their jobs and employment rates would shoot to the roof. In the end, carbon tax will not exactly stop the production of CO2, but only change how and where it is produced.

2. Expensive Administration Costs
For carbon tax to be really expensive, the government would need a huge amount of money to implement it. If more funds are available at their disposal, implementation would not be a problem. If this is not the case, then the rule would be ineffective, especially because it requires money to ensure carbon tax is functioning properly.

Aside from this, it is often difficult to determine the actual external cost and the amount of tax that must be imposed. This requires more time, effort and money.

3. Covert Operations
What are the odds that companies would look for ways to evade carbon taxes? This would raise plenty of covert strategies or dirty tricks to fool the system, so to speak. But the worse part would be businesses being secretive about their entire operation, producing carbon dioxide in a way that could be more damaging to the environment. Tax evasion and unethical CO2 production could be a very deadly combination.

4. Costs Increase
It is believed that carbon tax will increase the cost of fossil fuels, which will then increase expenditures involved in goods and services production. In a poor developing world, this can spell bad news because they can’t afford the slightest increase in energy costs. Low-income earners are likely to suffer when their energy bills are raised. This would then call for a carbon tax rule that will reflect each person or company’s ability to pay.

With the ongoing debate of whether or not global warming is catastrophic, questions about the benefits of carbon tax remain. Perhaps the answer of pro or anti carbon tax would depend on who you are asking. Companies that will be greatly affected by it will always look at tax as a bane, while environmentalists will view it as a boon.

About the Author
Brandon Miller has a B.A. from the University of Texas at Austin. He is a seasoned writer who has written over one hundred articles, which have been read by over 500,000 people. If you have any comments or concerns about this blog post, then please contact the Green Garage team here.