The Carrot or the Stick

Taxes are a stick. They dis-incentivize the use of a particular good. In Washington State, the alcohol tax rate is a whopping 20.5%. Taxes on goods such as alcohol, tobacco, and gambling (also known as a sin tax) are typically set high to discourage the use of a particular activity. These taxes are less controversial because they only affect a particular group of individuals that purchase those specific goods.

Similar to the sin tax, yet distinctly different, is a carbon tax. A carbon tax is a tax levied on fossil fuels that release carbon dioxide into the atmosphere, which leads to global warming and climate change. The purpose of the tax, similar to a sin tax, would be to increase the cost of fossil fuels, decrease the release of carbon dioxide, and motivate a switch to clean energy sources. But unlike a sin tax, fossil fuels are used by a large majority of the U.S. population to drive to work, heat their home, and transport goods. Currently, there is no nationwide carbon tax levied in the U.S.

A carbon tax is a stick and also a leading reason such a tax has not gained traction in the U.S. What if carbon had value? What if reducing or removing carbon from the atmosphere could be profitable?

An incentive system is a carrot. The system incentivizes a particular action. One of the most robust incentive systems is the free market. The market drives innovation, efficiency, and profitability. If carbon could be commoditized, given a value, and then purchased in the market, then this could go a long way in reducing carbon in the earth’s atmosphere.

Carbon Engineering in a company formed to capture carbon dioxide from ambient air and then convert the carbon into a fuel source that could be sold. The company has backing from private investors including Bill Gates. This is an example of using a market-based entrepreneurial approach to reduce carbon.

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Carbon Engineering technology to capture carbon dioxide from the air

When thinking about influencing a particular behavior, especially when it comes to carbon emissions, use the carrot, rather than the stick.

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