What Is a Carbon Tax?

Just 100 corporations are responsible for 71 percent of greenhouse gas emissions. A carbon tax could incentivize them to reduce their carbon emissions and switch to clean energy.

This is the latest in our ‘What It Means’ series, where we unpack the meaning and value behind important sustainability concepts.

Generally, it’s overwhelming to think about the proliferation of greenhouse gases in the atmosphere, especially when you consider human-produced contributions have skyrocketed carbon emissions to historic levels, contributing to unprecedented global warming. But many of these emissions can actually be traced to a fairly contained group of offenders.

In 2017, the Carbon Majors Report found that just 100 companies were responsible for 71 percent of the world’s greenhouse gas emissions. And in recent years, support for holding the biggest carbon dioxide emitters accountable has grown, with experts and the United Nations saying that putting a price on carbon emissions is key to fighting climate change. More than 40 countries have already instituted carbon taxes in various forms, and the United States could be on its way to joining them.

At its simplest, carbon pricing is a tax applied to every ton of fossil fuel an emitter burns. Canada’s minimum price for carbon, for instance, started at 40 Canadian dollars per metric ton in 2019 and is expected to grow to 170 Canadian dollars in the next decade. The price attempts to account for the costs the public pays as a result of emissions, like health care and loss of property. That’s no small number. The U.S. Government Accountability Office has estimated that climate impacts have probably cost the federal government more than $350 billion in the last decade alone. One solution is cap and trade programs — which set a limit on emissions and let companies buy or sell allowances for the amount of emissions they may produce — and can be implemented alongside or instead of a carbon tax.

In 2017, the Carbon Majors Report found that just 100 companies were responsible for 71 percent of the world’s greenhouse gas emissions. Photo courtesy Unsplash.

Read More: What Are Carbon Offsets?

Ultimately, though, what carbon pricing aims to do is make climate part of real economic decisions where it matters. While consumers may see changes in places like energy bills, carbon taxing programs put the heaviest financial pressure on those who create the most pollution. By doing this, it gives companies real incentives to decrease their emissions and switch to cleaner forms of energy.

It’s simple economics — which may explain why economists across the political spectrum support the idea of a carbon tax. In 2019, 45 economists, including nearly all Republican and Democratic chairs of the Council of Economic Advisers since the 1970s, wrote a letter in support of a carbon tax. “Among economists, this is not controversial,” Greg Mankiw, an economist who signed the letter, told the Washington Post.

Many hope some of the money that comes from a carbon tax can be used for projects that develop clean energy, restore ecosystems, or support climate resilience. In their letter supporting a carbon tax, the economists suggested that all the funds from the tax would be given back to Americans as a rebate meant to make up for any price increases individuals would experience due to carbon pricing. Most Americans, they wrote, would probably end up making more money on the rebate than they’d lose from day-to-day pricing changes.

This has worked out in Canada already, where a 2020 report found that most people spent less in additional fees from carbon taxes than the amount of the rebate, which was estimated at around $2,000 per household. Britain — which puts a $25 price on each metric ton of carbon and has instituted carbon pricing since 2013 — saw emissions fall to their lowest level since 1890 by 2017. It’s no coincidence. A New York Times evaluation points out that countries with less aggressive carbon taxes tend to fall well short of their emissions-cutting goals. This is true in Australia, where political haggling has resulted in only modest carbon pricing so far.

Economists who have studied the matter think political messaging is mainly responsible for the slow uptake of a carbon tax in the U.S., but not because the tax is particularly controversial. In fact, a 2020 poll from the Yale Program on Climate Change Communication found that 68 percent of voters support the idea. And in 2018, a broad coalition of businesses including Exxon Mobil, Shell, and BP came together in support of a carbon tax as the Climate Leadership Council. (Not that this diminished bad behavior in the fossil fuels industry; a June report in the New York Times found that many large drilling companies are just selling their most polluting assets to smaller companies that aren’t as transparent or well scrutinized.)

Though California has a statewide cap-and-trade program, the Biden administration has been relatively silent about the idea of national carbon pricing. This could partly be a response to the concept’s popularity in previous years. As Shannon Osaka reports in Grist, carbon pricing was once framed by both Democratic and Republican politicians as a silver bullet to the climate crisis. Today, progressive organizations like the Sunrise Movement know that it’s not a good idea to pin so many hopes on one approach. “Having a carbon tax kind of recedes into the background” compared to other climate priorities at the moment, as environmental policy professor Parrish Bergquist told Osaka. Meanwhile, many conservatives now avoid the idea because it doesn’t get them votes.

A 2020 poll from the Yale Program on Climate Change Communication found that 68 percent of voters support a carbon tax. Photo courtesy of Unsplash.

It’s possible that the Biden administration doesn’t see a carbon tax as politically helpful as it’s become less of a star issue for both parties. But as Congress argues over key features of Biden’s climate plan, many still hope that it can regain bipartisan enthusiasm. A carbon tax on its own is no cure-all, but as carbon emissions are set to grow at the second-highest rate in history in 2021, it’s another tool in our toolbox that we can use in the fight against climate disaster.

Erin Berger is a freelance writer and former culture editor at Outside magazine. She’s based in Santa Fe, New Mexico, where she skis, bikes, and hikes. She has a puppy named Henry.