A carbon tax is a tax on the carbon content of fuels — effectively a tax on the carbon dioxide emissions from burning fossil fuels. Thus, carbon tax is shorthand for carbon dioxide tax or CO2 tax.
Carbon atoms are present in every fossil fuel — coal, oil and gas. They are the primary source of the heat released in fuel combustion, and essentially all of them are converted to CO2 when the fuel is burned. Carbon dioxide, an otherwise non-lethal and innocuous gas, rises in the atmosphere and remains resident there, trapping heat re-radiated from Earth’s surface and causing global warming and other harmful climate change. In contrast, non-combustion energy sources — wind, sunlight, falling water, atomic fission — do not convert carbon to carbon dioxide. Accordingly, a carbon tax (or CO2 tax) is effectively a tax on the use of fossil fuels, and only fossil fuels.
The carbon content of every form of fossil fuel, from anthracite to lignite coal, from residual oil to natural gas, is precisely known. So is the amount of CO2 released into the atmosphere when the fuel is burned. A carbon tax thus presents few if any problems of documentation or measurement. As discussed here, administering a carbon tax should be simple; utilizing existing tax collection mechanisms, the tax would be paid far “upstream”. Fuel suppliers and processors would pass along the cost of the tax to the extent that market conditions allow.
Per unit of energy (or Btu), natural gas emits the least CO2 of any fossil fuel when burned, and coal the most, with petroleum (oil) products such as gasoline occupying the middle range. Generally, a Btu from coal produces 30% more carbon dioxide than a Btu from oil, and 80% more than from natural gas. A carbon tax would follow these proportions, taxing coal somewhat more heavily than petroleum products, and much more than natural gas.
To the extent carbon is included in a product such as plastic, but is not burned, that carbon will not be taxed. Similarly, to the extent the carbon used to produce energy is permanently sequestered rather than released into the atmosphere, that carbon will not be taxed or a tax credit will be provided.
Very little taxation of carbon is presently in place in the world. Nevertheless, a large and growing number of economists, policy-makers and concerned citizens regard stiff carbon taxes as essential for combating the climate crisis that gravely threatens humankind and other living things.
A carbon tax must be the central mechanism for reducing carbon emissions. Currently, the prices of gasoline, electricity and fuels in general include none of the costs associated with devastating climate change. This omission suppresses incentives to develop and deploy carbon-reducing measures such as energy efficiency (e.g., high-mileage cars and high-efficiency heaters and air conditioners), renewable energy (e.g., wind turbines, solar panels), low-carbon fuels (e.g., biofuels from high-cellulose plants), and conservation-based behavior such as bicycling, recycling and overall mindfulness toward energy consumption. Conversely, taxing fuels according to their carbon content will infuse these incentives at every chain of decision and action — from individuals’ choices and uses of vehicles, appliances, and housing, to businesses’ choices of new product design, capital investment and facilities location, and governments’ choices in regulatory policy, land use and taxation.
A carbon tax won’t stop global climate change by itself — other, synergistic actions are required as well. But without a carbon tax, even the most aggressive regulatory regime (e.g., high-mileage cars) and “enlightened” subsidies (e.g., tax credits for efficiency and renewables) will fall woefully short of the necessary reductions in carbon burning and emissions.
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