Geoscience Reference
In-Depth Information
Let's take an example. Suppose a company generates electricity
using coal. A large plant might burn 500 million tons of coal each year.
At a tax of $25 per ton of CO 2 , the plant would pay almost $400 mil-
lion per year in carbon taxes. This would be the single most important
component of costs and would defi nitely get the attention of manage-
ment.
A universal carbon tax would be similar to this example but would
apply to all sources of CO 2 (and other GHGs as well). Coal, oil, and pe-
troleum are the major sources of CO 2 , but other areas such as cement
production and deforestation would also come under a universal tax.
As in any tax system, there are many lawyerly details.
Carbon taxes (or more frequently their relatives such as energy
taxes) featured in the early discussions of climate-change policy. They
were shunted aside in the late 1990s because the political negotiators at
international meetings believed that quantitative restrictions were
more familiar and more likely to be acceptable to the public and na-
tional governments. Since 1997, as a consequence, quantitative restric-
tions such as cap and trade along with regulations have been the norm
in international negotiations.
However, carbon taxes have been used by a few countries to raise
revenues. Some western European countries have carbon taxes or
mixed energy-carbon taxes on the topics. India levied a $1 per ton car-
bon tax on coal, and China is considering such a tax. Similar proposals
have been considered in Korea, Australia, New Zealand, Canada, and
the European Union. Up to 2012, no country has introduced a high
carbon tax that is applied to the entire economy.
CARBON TAXES AND CAP AND TRADE:
THE CENTRAL EQUIVALENCY
How do the two regimes—cap and trade and carbon taxation—
compare? Most people will be surprised to learn that they are fun-
damentally the same. That is, in an idealized situation, they have the
same effects on emissions reductions, on carbon prices, on consumers,
and on economic effi ciency. People may argue strenuously about which
is better, but each of them has the effect of reducing CO 2 emissions by
 
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