Taxes as part of Adaptation Strategy
Initiating carbon/energy taxes, as well as taxes on other gases have become a form of adaptation strategy.
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.
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.
Carbon taxes were enacted in the early 1990s in northern European countries. Yet, today, Carbon or carbon/energy taxes are becoming more and more prevalent - recent carbon/energy taxes that have been introduced include the UK’s “climate change levy” and Estonia’s CO2 tax. Poland is also planning to introduce a CO2 tax.
In most countries, when a carbon or carbon/energy tax has been established, it is often done as part of a “green tax reform,” where environmental taxes are used to reduce existing, more distortionary taxes.
Additionally, the aims of carbon/energy taxes vary among countries ranging from increasing energy efficiency to raising revenue.
When setting individual tax rates, "governments need to ensure that rates are high enough to be effective and provide sufficient incentive for action while ensuring that they are not so high that industries close down or relocate, which could just result in carbon “leakage” rather than reduction."
Governments have approached this issue in a couple of ways:
1. Allowing industry complete or partial exemptions from carbon or carbon/energy taxes applied elsewhere in the economy.
2. Revising tax rates/exemptions
Taxing Other Gases
Most taxes are on carbon/energy - the taxation of other gases is rare, yet it has been done.
Emissions of non-CO2 gases from industry are more commonly limited by non-tax policies such as regulations or voluntary approaches. However, for example, France has enacted a tax on emissions of non-CO2 gases: N2O emissions in industrial facilities are taxed. In the same manner, Norway began a tax on the import of HFCs and PFCs in 2003.
Impact of Taxes on Economic Growth
Opponents of carbon or other taxation argue that the taxes:
1. Are regressive, disproportionately affecting the poor:
A "regressive" tax is one that disproportionately burdens poorer groups. Energy consumption generally makes up a larger portion of the personal budgets of poorer groups. Because energy consumption would be taxed equally across social groups with a carbon tax (it's a "flat tax"), the costs of the tax would disproportionately affect poor groups. Studies typically find that poor consumers spend a greater proportion of their income on energy-intensive goods and fuel. Therefore cost increases in energy tend to impact the poor worse than the rich.
2. Raise prices too much across the entire economy:
For example, State Treasurer Christian Porter has said that electricity bills alone will increase by up to $200 per year with an approved carbon tax is approved (ABC News). There is also expected to be an increase in other prices such as the price for gasoline.
3. Put US goods at an international competitive disadvantage
The private sector will be less competitive regardless of how much of a tax credit is passed on. Even if one has more money, he or she would not be more inclined to buy a US made good compared to another good that does not have extra carbon costs.
Neuhoff, K. (2008). "Tackling Carbon: How to price carbon for climate policy". Electricity Policy Research Group." http://www.eprg.group.cam.ac.uk/wp-content/uploads/2009/03/tackling-carbon_final_3009082.pdf