Based on the economic principle of negative externalities, a carbon tax is a way — maybe the only way — to make users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere. The carbon tax is it’s a pure price signal because it makes using dirty fuels more expensive, it encourages utilities, businesses, and individuals to reduce consumption and increase energy efficiency. Washington state is already on the way with Initiative-732, which is gaining more and more support. However, it’s never easy to establish a policy especially when it involves different aspects and groups. So how to make it better and contribute to its implementation? Although I don’t know everything about it, I have some thoughts that may be helpful.
- How to decide the tax rate? The most common explanation of carbon tax is that “The government sets a price per ton on carbon”. It seems that there is a standard measurement of the carbon, however, we know that the carbon content of oil, coal, and gas varies, and here come the Btu heat units, something standardized and quantifiable — instead of unrelated units like weight or volume. There has been some research done about it and based on Btu heat units, the different tax rates reflect carbon content in each fuel, even could be categorized into multiple subsystems, which should be open and transparent to the public. These subsystems give consumers, especially households and individuals, direct monetary incentive and more alternatives if they need more time to shift their energy resources from fossil fuels to cleaner energy.
- The compensation measures of the carbon tax is another powerful nudge. There are different ways to return the money back to the productive and innovating parts of the economy as tax breaks, and there should be a healthy system to manage that. The method can be determined by their conditions and to their best profit. For example, for individuals and households, it could be achieved through personal income tax system including tax credits, or provide cash transfers for low-income individuals. And for high-rise office, it could go toward clean energy subsidies and investment in public transportation. Or there could be a portion to support the non-profit organizations that are devoting to fight the climate change by educational programs.
- The carbon tax should be combined with other measures to create the best outcome. The aim is to replace fuels with renewable energies, so something has to be done about those clean energies. For example, by reducing the price of clean energies and improve the access to them would be super helpful in a state or even nationwide. For most of the consumers especially households and individuals, the biggest reason using fuels is that they are cheap and easy to get. So by cutting down the price and improving the infrastructure of cleaner energy resources, their competitiveness would be enhanced greatly. And it would also bring extra benefits such as providing more job opportunities if wind energy stations are built along the coast of Washington.
Most fundamentally, an overall framework is needed, and at the same time, several subsystems and alternatives are also needed, in order to make the carbon tax more sound and to increase the environmental effectiveness and economy efficiency.