By Andy Gebhardt
Everything has a price
Everything has a price. We can look at climate change as an economic problem. Economically speaking, climate change is a market failure. People fly, drive cars and overuse air conditioners because the consequent carbon emissions incur no cost: we do not have to pay for the damage we cause. That is where a carbon tax comes in: to resolve the market failure.
A carbon tax puts cost to pollution
A carbon tax is a tax just like VAT (value added tax), that we pay at the point of purchase, included in the price of the good/service, on all purchases we make. However, a carbon tax is a tax not levied on all purchases like a VAT. It is only applied to fossil fuels and other Green House Gas producing activities. The level of taxes is determined by the amount of CO2 emissions generated per unit of sold energy or substance.
Higher energy cost = higher efficiency = lower consumption
The tax increases the cost of energy intensive goods and services (e.g. fuel, flying). This is an incentive to use less of the now more expensive goods/services. It triggers efficiency. And with that, lower emissions.
However, for people with limited income, a hike in e.g. fuel cost can be disastrous -they might not be able to afford to go work anymore, as the yellow-west protests in France have shown. In particular in the absence of an affordable alternative to gasoline fuel. In addition, increasing the cost of GHG emitting fuels alone will not reduce emissions as fast as is required.
For this reason, individuals have to be compensated for the increasing energy cost. Simultaneously, we have to develop an affordable GHG-free alternative.
The climate tax develops a cheaper and GHG-free alternative to fossil energy
This is why 50% of the tax revenues will be paid back to individuals in cash; to compensate for the increasing energy bill and potentially increasing cost of goods. 40% of the tax revenues will be used to finance the rapid development of a renewable energy infrastructure. The new renewable energy infrastructure provides a cheaper alternative to fossil fuels, and will reduce emissions fast. The remaining 10% could be used for research and development of renewable energy technology.
The proposed carbon tax will reduce GHG emissions to Zero by 2035, while reducing the total global energy bill by 2% of World GDP.
For more information, please check http://www.globalcarbontax.org