Pay for the environment: A solution to a taxing problem

Madeline Rawson

 We have all seen the image of a polar bear floating on disappearing ice, but that impact seems abstract. The Intergovernmental Panel on Climate Change report released in 2018 on climate change brings those impacts closer. The report found that a 2.7-degree Fahrenheit rise in global temperatures above pre-industrial levels will cause food shortages and coastal flooding, which would consequently worsen poverty and increase wildfires and droughts. So far, the Earth has warmed by 1.8 degrees Fahrenheit. Temperatures are rising because of the carbon dioxide societies have pumped into the atmosphere. This gas acts as a blanket around the world, trapping heat from the sun in the Earth’s system. Changes due to hotter temperatures will cost around $54 trillion in damages. If we decrease our carbon dioxide emissions, these costs can be prevented. The best policy for meeting this goal is a carbon tax, which will reduce emissions in an economically stable way. 

Three policies that reduce emissions include government regulation, cap-and-trade programs and carbon taxes. Government regulation means following top down emission standards set by the Environmental Protection Agency. These standards are altered by each administration making long -term planning difficult for businesses. They also exert pressure on all types of fossil fuels rather than first targeting the ones with higher carbon contents. 

Cap-and-trade programs and carbon taxes are carbon pricing systems, which aim to place a monetary cost on carbon. Cap-and-trade programs allow the government to auction permits that set a cap on carbon dioxide emissions to businesses. Companies can then trade caps on a secondary market to meet their needs. If it is cheaper for a company to lower its emissions than to continue paying for a permit, it can sell this permit to another company. This approach sets a definitive limit on the amount of carbon dioxide emitted per year. However, it leaves the financial burden on businesses uncertain, because this system is susceptible to economic fluctuations. 

The best option is a carbon tax, which is both economically stable and environmentally beneficial. A carbon tax sets a price on carbon dioxide emissions. Paying this price would motivate industries and individuals to reduce consumption and increase efficiency. A price on carbon would also stimulate the market for alternatives to carbon-intensive products, making them competitive without government subsidies. This means the success of technology will be determined by market forces rather than government selection. For instance, to avoid tax, individuals can take public transport, use compact fluorescent lamps and update heating and cooling systems. Industries will be more likely to invest in energy-efficient technology. This approach was effective in British Columbia, which enacted a carbon tax in 2008. According to a working paper from the World Resources Institute, greenhouse gas emissions have decreased and its economic growth has kept pace with the rest of the country. 

Most mainstream economists have endorsed the carbon tax as the best way to reduce emissions while strengthening the economy. The tax will generate revenue that could be used in several ways. One proposal makes the carbon tax “revenue neutral,” meaning all money collected will be returned to American citizens through a carbon dividend (estimated at $2000 per family of four). This would save most families money. Revenue could also be used to compensate lower income households that spend a large percentage of their income on energy. Additional ideas include using it to institute tax cuts, reduce the deficit, fund transitional assistance for those in carbon-intensive industries or invest in environmental programs and public infrastructure. 

A federally consistent response to emissions will be better for business than the current patchwork of state and federal regulations. Unlike under unpredictable emission standards, the cost of carbon would be stable. This is a reason why Exxon offered its public support and a donation of $1 million to a “revenue-neutral” carbon tax. 

Border carbon adjustments would also be included in the carbon tax. These would tax imports from countries without carbon pricing according to the item’s carbon content. This would protect the competitiveness of American industry and put pressure on other countries to take similar action. For other countries, implementing a carbon pricing system means their exports to the United States wouldn’t be subject to an American carbon tax. The revenue from taxing the carbon content of these goods would instead benefit their country. This will start a domino effect around the world as more countries feel the pressure to adopt a carbon pricing system. 

The idea behind a carbon tax is that it requires companies to pay for the damage they do to the environment. The tax would make renewable energy competitive, decrease use of fossil fuels, promote a conservationist and efficient lifestyle and put pressure on other countries to reduce their emissions. 

Madeline Rawson ’21 is a prospective environmental studies major from Harrison, NY.