Governments around the world have been implementing various policy tools to reduce greenhouse gas emissions. One of the most popular tools is a carbon tax.

What is a Carbon Tax?

A carbon tax is aimed at reducing human generated CO2 by decreasing the economic viability of fossil fuels. The tax essentially charges a certain amount of money for carbon emissions. A tax like this can be charged to fossil fuel producers as well as individual consumers.

Implementing Carbon Tax Policies

A carbon tax policy on fossil fuel producers could be something as simple as charging money for each tonne of greenhouse gas they emit. This essentially forces them to include greenhouse gas emissions as part of their business plan as there is a real dollar value tied to it.

A carbon tax on consumers could be something like increasing the price for gasoline through an additional tax. This will put an increased cost on individuals for burning fossil fuels.

With carbon tax policies on individual consumers, the government has to be careful so that they don’t disproportionately impact lower income brackets. One way to do this is to issue a carbon tax credit based one an individual’s tax return.

Downsides of a Carbon Tax

Implementing a carbon tax can cause companies to reduce or stop investments in regions where these taxes exist. Many fossil fuel producers are large multinational organizations, and can simply choose to pack up and go to a region where there are no carbon taxes.

This can stall economic growth in areas with carbon taxes, and not reduce overall global emissions since the fossil fuel companies are just shifting their emissions to another region.

When it comes to individual consumers, a carbon tax system without appropriate credits for low income brackets may unfairly punish those who cannot afford to switch to renewable energy solutions.