8 Pros and Cons of Carbon Tax

Most of the world agrees. Global warming is an issue that must be addressed. Voluntary compliance on carbon production issues has been negligible. One of the alternatives being considered to put a stop to excessive production is a carbon tax. In basic terms, companies and/or individuals would be allowed a certain amount of carbon production every year. If that amount is exceeded, then a financial penalty would be assessed.

Is it a good idea? Could it be implemented? Or would it just create more harm than good? Here is a look at the key pros and cons of a carbon tax that should be considered.

What Are the Pros of a Carbon Tax?

1. It would encourage corporations to focus on innovation.
If producing excessive amounts of carbon becomes problematic to a company’s budget, then the need for cost savings may encourage innovation that could naturally reduce gas levels. Businesses tend to head toward whatever the cheapest available method happens to be. Taxation could help to facilitate change when the current system does not.

2. It could produce less carbon dioxide.
Ultimately the goal of a carbon tax is to make it financially difficult to keep producing this gas at potentially harmful levels. Although in theory a company or individual could just say that they’re going to do it anyway and pay the fees, many will look to reduce outputs so they won’t have to take a massive budgetary hit.

3. It could increase revenues if given enough time.
To be fair, the goal of a carbon tax should to be phase itself out over time. In the short-term, however, the extra revenues that a carbon tax could generate provide the possibility of funding renewable energy sources and other forms of production that can help the planet begin to heal and reverse the damage that global warming may have caused.

4. Carbon tax revenues could be used to offset marginal tax rates.
If the revenues from carbon taxes were used to lower the marginal tax rates, the end result would be a potential decrease in total taxation for some homes and businesses while the environmental benefits could still be achieved.

What Are the Cons of a Carbon Tax?

1. Companies and people will just leave the countries where taxes are implemented.
If a carbon tax isn’t a global initiative, then there will be pockets on the planet where corporations and certain individuals will be able to find refuge from these additional fees. Since excessive carbon production affects everyone no matter where in the world it may be, the main outcome could be a loss of jobs and revenues.

2. There is no real infrastructure in place to implement a carbon tax.
An entirely new system of taxation would need to be created to implement a carbon tax. Emissions would have to be monitored at the source to verify output levels. Having officials in place to enforce tax laws has its own complications as well. Over time, a positive impact on funding and the environment might be achieved, but it could cost billions to get there.

3. Consumers would ultimately bear the greatest burden.
Although the carbon tax would be aimed at corporations to get them to change their ways, it is the consumer that would pay the price. Think about it like this: hundreds of millions of Americans buy gasoline. A carbon tax on the 150+ refineries in the United States would create increased costs at the supplier. Those costs would be passed along to the consumer, meaning it’s the average person who would typically pay this tax and not the corporations who are creating many of the problems in the first place.

4. It would raise energy prices.
The creation of carbon is a side effect of cost effective energy. By taxing it, not only would prices raise for the energy needs of consumers, but there would be less overall energy consumed. For every 10% increase in price, there is an estimated 3% decrease in consumption. From an environmental standpoint this sounds like a benefit, but from an economic standpoint, it could hurt households a lot. Energy isn’t just electricity and natural gas. It’s fuel for vehicles to get to work, shipping resources for goods, and the foundation of modern society. Reducing production means fewer jobs, which eventually means less value.

The pros and cons of a carbon tax show that there are some potential benefits, but it will come at the expense of the average consumer. A system that makes everyone pay their fair share, not just the consumer, makes more sense to implement. Is a carbon tax the right way to proceed? By weighing these key points, we can begin to come to a consensus on the issue.

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