Written by Breanna Edwards
Edited by Annika Lilja
In an age of rapid and catastrophic climate change coupled with stubborn politicians and relentless opposing sides, saving the world from global warming often seems to be a daunting and even impossible task. There are a thousand “this is the thing that can save the environment!” campaigns that have promised and failed, and this makes it difficult to be anything but wary of exciting solutions. The carbon tax is a legislation that is gaining bipartisan momentum, but is it just more fake promises? Or could it be the bill that kickstarts the reinvention of our fossil-fuel dependent world?
Carbon tax legislations are essentially what they sound like: Putting a tax on the amount of carbon (by tons) an individual or corporation uses. There are several different kinds of carbon taxes, but all of them have the same mission: incentivizing people to lower their carbon emissions and reminding them that fossil fuels have a price. A few of the most popular legislative models are summarized below.
What is it?
While not quite a carbon tax, the cap-and-trade system is a program which is often categorized the same and aims for similar results. A cap-and-trade program, also called an emissions trading system (ETS), gives corporations a cap on the amount of carbon that they can emit. If they don’t reach this cap, they can sell their remaining carbon dividend to other corporations, who may want to use more carbon. This way, there is a limited amount of carbon that can be emitted, and the possibility of gaining profit from selling ‘shares’ might be an incentive that would help lower corporation’s emissions. Rather than giving each business a set number, the government may also hold an auction where businesses can purchase and bid on carbon tons.
ETS will incentivize profit-driven businesses to lower their carbon emissions. When the government sells carbon trades, it creates an additional source of revenue which can be put towards social programs. ETS also makes green energy more in demand, and therefore (eventually) more affordable.
If they can afford to purchase large amounts of carbon shares, not all corporations may actually be encouraged to lower their emissions. Cap-and-Trade Programs can also be difficult to regulate, and can require strict and close government moderation to ensure that corporations are not exceeding their allotted emissions.
Cap-and-Trade Programs have been implemented in several places around the world. One of the largest is in California. The California regulations apply to the majority of industries, covering the emitters of 85% of the state’s emissions, and was first put into place in 2013. Between 2013 and 2017, the state reduced its emissions by 5.3%, part of which can be attributed to this program. Overall, it seems that this policy has made a difference in California and other regions in which it has been used.
Carbon Fee and Dividend Act
What is it?
The carbon fee and dividend act is a proposed legislation which would put a fee on carbon per ton, then divide the revenue among citizens. For example, let's say we have a country consisting of two people: Person A and Person B. Person A used 2 tons of carbon, while person B used 4 tons of carbon. The government would collect $30 from Person A and $60 from Person B, for a total of $90. Each would then receive $45. Person A (who used less carbon) would make a profit of $15, while Person B (who used more carbon) would lose $15.
Economists have studied this model and found that it has numerous economic and health benefits. It encourages families and individuals to reduce their carbon emissions. Since the majority of emissions are from the middle and upper classes, lower class citizens would most likely be making additional money every month due to their low production levels, lowering poverty and inequality. With an increased demand for clean energy, it will drive innovation and lower costs, and has the potential to create millions of jobs. It is also estimated that it would save 4.5 million American lives as it lowers air pollution. The Carbon Fee and Dividend Act has also been one of the most bipartisan pieces of climate legislation, as it benefits both the economy and the environment.
Some citizens may be unhappy with being charged for their carbon usage, even if they get some of it back.
What is it?
A carbon tax is similar to the Carbon Fee and Dividend Act. Individuals and businesses must pay a tax on each ton of carbon that they emit. The only difference is that in this model, the revenue is not redistributed to the people but kept by the government as a tax.
The carbon tax will incentivize greener energies and lifestyles, lower emissions, and create a cleaner environment. The additional revenue generated by the tax may also be used by the government to support social programs.
Imposing additional taxes on struggling families and small businesses without financial support to help them switch to a greener lifestyle may push some further into poverty. Carbon tax bills are also likely to generate partisan debate, as most Republicans will oppose additional taxes.
“California Cap and Trade.” Center for Climate and Energy Solutions. https://www.c2es.org/content/california-cap-and-trade/. Accessed 10 Feb. 2022.
Gaille, Lousie. “20 Cap and Trade System Pros and Cons.” Vittana. 16 Apr. 2019. https://vittana.org/20-cap-and-trade-system-pros-and-cons.
“Why Put a Price on Carbon?” Citizens Climate Lobby. https://citizensclimatelobby.org/price-on-carbon/. Accessed 10 Feb. 2022.