Carrot versus Stick

Individuals and organizations that support effective policy change to limit carbon emissions argue for the carbon tax. The reasons they give for how and why this would work are strong and well thought out. This tax is a disincentive for not doing the right thing, namely for polluting carbon, also known as a “stick” approach. It is compared to the “sin” tax on cigarettes and alcohol to discourage people from buying or at least not becoming over-indulgent.

So what would this tax go to fund? Taxes are levied to raise money for a public good. In this case the tax is meant to be behavioral and so having a budding fund is an extra perk. But can these funds strategically be used to accomplish the same goals that the tax would be implemented for in the first place?

The other side of this point of view would be awarding good behavior, or using the “carrot” approach. Currently there are incentive programs in individual states and municipalities. As AP Hurd suggests, there are places where a developer can get a higher density allowance for building to LEED Standards. This is great, but other companies that have different businesses will not be incentivized by the same awards. The only universal award that all will appreciate is money, or a reverse tax.

What if the taxes raised by the carbon tax were used to raise funds to pay back businesses that did not emit carbon? Essentially, through governmental control, high polluting companies would be paying non-polluting companies. This would be similar to a cap-and-trade program except there would not be a total capacity of polluting permits. Instead, market forces would allow for non-polluting companies to thrive by having no extra carbon taxes and receiving additional monetary award, while polluting companies would have to pay the carbon tax.

Essentially the carrot and stick approach can be done simultaneously.

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