General public misunderstands carbon-tax rebates in Canada

Taxing corporations and consumers for the amount of carbon emissions they generate can be a great way to deal with climate change—so say many leading politicians, economists and environmental activists. In Canada, we've ...

Climate action can lessen poverty and inequality worldwide

If all countries adopted the same tax on carbon emissions and returned the revenues to their citizens, it is possible to keep the global temperature from rising more than 2 degrees Celsius while also benefiting well-being, ...

How to make climate action popular

Ambitious action is needed to stop average global temperatures rising above 1.5°C. But some measures to cut fossil fuel use and develop alternative industries have provoked resistance. Wind farms can be a common source of ...

Time to give up on a carbon tax?

Since 2006, economist and former Bush-era White House adviser Greg Mankiw has been encouraging economists and policy makers to join the Pigou Club, which advocates for a tax on carbon. The idea goes back to economist Arthur ...

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Carbon tax

A carbon tax is an environmental tax on emissions of carbon dioxide and other greenhouse gases. It is an example of a pollution tax.

Carbon atoms are present in every fossil fuel (coal, petroleum, and natural gas) and are released as CO2 when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not convert hydrocarbons to carbon dioxide. Accordingly, a carbon tax is effectively a tax on the use of fossil fuels, and only fossil fuels. Some schemes also include other greenhouse gases; the global warming potential is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent.

Because of the link with global warming, a carbon tax is sometimes assumed to require an internationally administered scheme. However, that is not intrinsic to the principle. The European Union considered a carbon tax covering its member states prior to starting its emissions trading scheme in 2005. The UK has unilaterally introduced a range of carbon taxes and levies to accompany the EU ETS trading regime. Note that emissions trading systems do not constitute a Pigovian tax, because they entail the creation of a property right.

The purpose of a carbon tax is to protect the environment by reducing emissions of carbon dioxide and thereby slow climate change. It can be implemented by taxing the burning of fossil fuels—coal, petroleum products such as gasoline and aviation fuel, and natural gas—in proportion to their carbon content. Unlike other approaches such as carbon cap-and-trade systems, direct taxation has the benefit of being easily understood and can be popular with the public if the revenue from the tax is returned by reducing other taxes. Alternatively, it may be used to fund environmental projects.

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