On March 31, 2015, the United States reported to the United Nations Framework Convention on Climate Change (UNFCCC) its Intended Nationally Determined Contribution (INDC) to the reduction of global carbon emissions. With its declaration, the US committed itself to decreasing its carbon emissions by 26-28 percent of its 2005 levels by the year 2025.
Five years remain on that commitment, and the US House and Senate still disagree on decisive actions to curb US CO2 emissions.
But a solution exists that’s proven to reduce emissions, is supported by economists, and that has bipartisan support. It’s called a carbon tax.
How does it work?
The principle is simple: charge people to pollute.
A carbon tax adds a fee to carbon-based fuels like coal, oil, and gas at their source, either at the point of extraction or on import.
Because companies will pay the primary tax, industries that still rely heavily on carbon-based fuels will be the first to bear the weight of increased fuel prices. Then, to maintain their profit margins, companies will raise prices on their high-emissions goods and services proportional to the cost of fuel.
Since the prices on goods and services will increase proportionally to the amount of fuel consumed in their production, products that emit large amounts of CO2 will increase in price according to how much pollution they create.
How does that help reduce emissions?
It might sound dangerous to raise taxes. But, counterintuitively, more expensive goods are actually a good thing.
Choice is the key word.
If high-emissions goods become more expensive and low-emissions goods stay the same, shoppers will naturally choose the less expensive product. So, by raising the cost of high-emissions products, we incentivize shoppers to buy from businesses that use green energy and that have a lower carbon footprint.
By empowering people with a choice, we let the free market work as it should. We equip individuals to take agency to build an economy in their community that favors clean energy and helps the US meet its INDC.
“View of one hour’s greenhouse gas emissions. In 2012 the world was emitting greenhouse gases at a rate of 4.5 million tonnes of CO2 equivalent an hour. That much carbon dioxide gas would fill a sphere 1,656 metres across – a bit more than a mile.”
– Carbon Visuals, Flickr, CC BY 2.0
Do we have proof?
To see that a carbon tax works, the US need only look to the policies of several countries that have already implemented their own version of a carbon tax.
Sweden, for example, instated its carbon pricing in 1990 and has seen huge growth in their biomass and biofuel industries since. The UK established a tax in 2013, and the trend in their carbon emissions has already decreased sharply. Australia likewise implemented a temporary carbon tax and saw a decrease in CO2 emissions in just that time. Two years later, the tax was repealed, and emissions began rising again almost immediately.
Following the examples of Sweden and the UK, and learning from Australia, the United States can take decisive action with a carbon tax that will both reduce its carbon emissions and fulfill its commitment to the UNFCCC.
By implementing a carbon tax, the US can build a cleaner economy, meet its emissions reduction goals, and put the power of choice back in people’s hands.