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A carbon tax is an Pigovian tax levied on the carbon content of fuels. It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel (coal, petroleum, and natural gas) and is released as carbon dioxide (CO2) when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not convert hydrocarbons to CO2. CO2 is a heat-trapping "greenhouse" gas. Scientists have pointed to the potential effects on the climate system of releasing greenhouse gases (GHGs) into the atmosphere (see scientific opinion on global warming). Since GHG emissions caused by the combustion of fossil fuels are closely related to the carbon content of the respective fuels, a tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle of the fuel.
Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions. From an economic perspective, carbon taxes are a type of Pigovian tax. They help to address the problem of emitters of greenhouse gases not facing the full (social) costs of their actions. Carbon taxes are a regressive tax, in that they disproportionately affect low-income groups. The regressive nature of carbon taxes can be addressed by using tax revenues to favour low-income groups.
A number of countries have implemented carbon taxes or energy taxes that are related to carbon content. Most environmentally related taxes with implications for greenhouse gas emissions in OECD countries are levied on energy products and motor vehicles, rather than on CO2 emissions directly.
Opposition to increased environmental regulation such as carbon taxes often centres on concerns that firms might relocate and/or people might lose their jobs. It has been argued, however, that carbon taxes are more efficient than direct regulation and may even lead to higher employment (see footnotes). Many large users of carbon resources in electricity generation, such as the USA, Russia and China, are resisting carbon taxation.
Carbon dioxide is one of several heat-trapping greenhouse gases (GHGs) emitted by humans (anthropogenic GHGs).:6 The scientific consensus is that human-induced greenhouse gas emissions are the primary cause of global warming, and that carbon dioxide is the most important of the anthropogenic GHGs. Worldwide, 27 billion tonnes of carbon dioxide are produced by human activity annually. The physical effect of CO2 in the atmosphere can be measured as a change in the Earth-atmosphere system's energy balance – the radiative forcing of CO2. Carbon taxes are one of the policies available to governments to reduce GHG emissions.
In the Kyoto Protocol, CO2 emissions are regulated along with other GHGs. Different GHGs have different physical properties: the global warming potential is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent.
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A carbon tax is an indirect tax—a tax on a transaction—as opposed to a direct tax, which taxes income. A carbon tax is also called a price instrument, since it sets a price for carbon dioxide emissions. In economic theory, pollution is considered a negative externality, a negative effect on a party not directly involved in a transaction, which results in a market failure. To confront parties with the issue, the economist Arthur Pigou proposed taxing the goods (in this case hydrocarbon fuels) which were the source of the negative externality (carbon dioxide) so as to accurately reflect the cost of the goods' production to society, thereby internalizing the costs associated with the goods' production. A tax on a negative externality is called a Pigovian tax, and should equal the marginal damage costs.
Within Pigou's framework, the changes involved are marginal, and the size of the externality is assumed to be small enough not to distort the rest of the economy. According to the scientific consensus, the impact of climate change may result in catastrophe and non-marginal changes. "Non-marginal" means that the impact could significantly reduce the growth rate in income and welfare. The amount of resources that should be devoted to avoiding climate change impacts is controversial. Policies designed to reduce carbon emissions could also have a non-marginal impact.
Prices of hydrocarbon fuels are expected to continue increasing as more countries industrialize and add to the demand on fuel supplies. In addition to creating incentives for energy conservation, a carbon tax would put renewable energy sources such as wind, solar and geothermal on a more competitive footing, stimulating their growth.
The social cost of carbon (SCC) is the marginal cost of emitting one extra tonne of carbon (as carbon dioxide) at any point in time. To calculate the SCC, the atmospheric residence time of carbon dioxide must be estimated, along with an estimate of the impacts of climate change. The impact of the extra tonne of carbon dioxide in the atmosphere must then be converted to the equivalent impacts when the tonne of carbon dioxide was emitted. In economics, comparing impacts over time requires a discount rate. This rate determines the weight placed on impacts occurring at different times.
According to economic theory, if SCC estimates were complete and markets perfect, a carbon tax should be set equal to the SCC. Emission permits would also have a value equal to the SCC. In reality, however, markets are not perfect, and SCC estimates are not complete (Yohe et al.., 2007:823).
An amount of CO2 pollution is measured by the weight (mass) of the pollution. Sometimes this is measured directly as the weight of the carbon dioxide molecules. This is called a tonne of carbon dioxide and is abbreviated "tCO2". Alternatively, the pollution's weight can be measured by adding up only the weight of the carbon atoms in the pollution, ignoring the oxygen atoms. This is called a tonne of carbon and is abbreviated "tC". Estimates of the dollar cost of carbon dioxide pollution is given per tonne, either carbon, $X/tC, or carbon dioxide, $X/tCO2. One tC is roughly equivalent to 4 tCO2.
Estimates of the SCC are highly uncertain. Yohe et al. (2007:813) summarized the literature on SCC estimates: peer-reviewed estimates of the SCC for 2005 had an average value of $43/tC with a standard deviation of $83/tC. The wide range of estimates is explained mostly by underlying uncertainties in the science of climate change (e.g., the climate sensitivity, which is a measure of the amount of global warming expected for a doubling in the atmospheric concentration of CO2), different choices of discount rate, different valuations of economic and non-economic impacts, treatment of equity, and how potential catastrophic impacts are estimated. Other estimates of the SCC spanned at least three orders of magnitude, from less than $1/tC to over $1,500/tC. The true SCC is expected to increase over time. The rate of increase will very likely be 2 to 4% per year.
Carbon leakage is the effect that regulation of emissions in one country/sector has on the emissions in other countries/sectors that are not subject to the same regulation. Leakage effects can be both negative (i.e., increasing the effectiveness of reducing overall emissions) and positive (reducing the effectiveness of reducing overall emissions). Negative leakages, which are desirable, are usually referred to as "spill-over".
According to Goldemberg et al.. (1996, p. 28), short-term leakage effects need to be judged against leakage effects in the long-term. A policy that, for example, saw a carbon taxes set only in developed countries might lead to leakage of emissions to developing countries. However, a desirable negative leakage could occur due to a lowering in demands of coal, oil, and gas from the developed countries and thus the world prices. This will lead to developing countries being able to afford more of any hydrocarbon fuel type, thus being able to substitute more oil or gas for coal, in effect lowering their national emissions. In the long-run, however, if the transfer of less polluting technologies is delayed, this substitution by income effects might have no long-term benefit.
A number of policies have been suggested to address concerns over competitive losses due to one country introducing a carbon tax while another country does not. Similar policies have also been suggested in an attempt to induce countries to introduce carbon taxes. Suggested policies include border tax adjustments, trade tariffs and trade bans.
Border tax adjustments would account for emissions attributable to imports from nations without a carbon price. An alternative would be trade bans or tariffs applied to non-taxing countries. It has been argued that such approaches could be disadvantageous to a target country as a trade measure (Gupta et al.., 2007). To date, World Trade Organization case law has not provided specific rulings on climate-related taxes. The administrative aspects of border tax adjustments has also been discussed.
Two other types of taxes that are related to carbon taxes are emissions taxes and energy taxes. An emissions tax on GHG emissions requires individual emitters to pay a fee, charge or tax for every tonne of greenhouse gas released into the atmosphere, while an energy tax is charged directly on the energy commodities.
In terms of mitigating climate change, a carbon tax, which is levied according to the carbon content of fuels, is not a perfect substitute for a tax on CO2 emissions. For example, a carbon tax encourages reduced use of hydrocarbon fuels, but it does not provide an incentive to mitigate or improve mitigation technologies, e.g. carbon capture and storage.
Energy taxes increase the price of energy uniformly, regardless of the emissions produced by the energy source (Fisher et al.., 1996, p. 416). An ad valorem energy tax is levied according to the energy content of a fuel or the value of an energy product, which may or may not be consistent with the emitted amounts of green house gases and their respective global warming potentials. Studies indicate that to reduce emissions by a certain amount, ad valorem energy taxes would be more costly than carbon taxes. However, although CO2 emissions are an externality, using energy services may result in other negative externalities, e.g., air pollution. If these other externalities are accounted for, an energy tax may be more efficient than a carbon tax alone.
Many OECD countries have taxed fuel directly for many years for some applications; for example, the UK imposes duty directly on vehicle hydrocarbon oils, including petrol and diesel fuel. The duty is adjusted to ensure that the carbon content of different fuels is handled with equivalence.
While a direct tax should send a clear signal to the consumer, its use as an efficient mechanism to influence consumers' fuel use has been challenged in some areas:
Some also note that a suitably priced tax on vehicle fuel may also counterbalance the "rebound effect" that has been observed when vehicle fuel consumption has improved through the imposition of efficiency standards. Rather than reduce their overall consumption of fuel, consumers have been seen to make additional journeys or purchase heavier and more powerful vehicles.
A carbon tax that compensates for the SCC varies by fuel source. The carbon dioxide production of the fuel source per unit mass or volume is multiplied by the SCC to obtain the tax. Based on the mean peer reviewed value ($43/tC or $12/tCO2), the table below estimates the tax:
(mass of CO2 produced)
(per fuel unit)
(mass of CO2 produced)
|Tax per kWh of electricity|
|gasoline||19.6 lb/US gal (2.35 kg/L)||$0.11/USgal ($0.028/L)||n/a||n/a|
|diesel fuel||42.4 lb/US gal (5.08 kg/L)||$0.12/USgal ($0.032/L)||n/a||n/a|
|jet fuel||22.1 lb/US gal (2.65 kg/L)||$0.12/USgal ($0.032/L)||n/a||n/a|
|natural gas||0.1206 lb/cu ft (1.93 kg/m3)||$0.00066/cu ft ($0.023/m3)||117 lb/MBTU (181 g/kWh)||$0.0066|
|coal (lignite)||2791 lb/ton (1.396 kg/kg)||n/a||215 lb/MBTU (333 g/kWh)||$0.0121|
|coal (subbutuminous)||3715 lb/ton (1.858 kg/kg)||n/a||213 lb/MBTU (330 g/kWh)||$0.0119|
|coal (butuminous)||4931 lb/ton (2.466 kg/kg)||n/a||205 lb/MBTU (317 g/kWh)||$0.0115|
|coal (anthracite)||5685 lb/ton (2.843 kg/kg)||n/a||227 lb/MBTU (351 g/kWh)||$0.0127|
Note that the tax per kWh of electricity depends on the thermal efficiency of the generating power plant, which varies from power plant to power plant. The table follows the American Physical Society (APS) estimate of 10.3 BTU/Wh (33%). The APS notes that "It is expected that future plants, especially those based on gas turbine systems, often will have higher efficiencies, in some cases exceeding 50%." A theoretical conversion rate of 100% is 3.412 BTU/Wh. A more practical limit for thermal power plants is Carnot's theorem.
Both energy and carbon taxes have been implemented in responses to commitments under the United Nations Framework Convention on Climate Change. In most cases where an energy or carbon tax is implemented, the tax is implemented in combination with various forms of exemptions.
|This section's factual accuracy may be compromised due to out-of-date information. (August 2011)|
A tax on emissions has been proposed for South Africa. Announced by Finance Minister Pravin Gordhan, the tax will be implemented starting September 1, 2010 on new motor vehicles. This tax will apply at the time of sale, and will be related to the amount of CO2 emitted by the vehicle. 75 South African Rand will be added to the price for every gram of CO2 per kilometer the vehicle emits over 120 g/km. The tax will apply to passenger cars first and eventually to commercial vehicles. Bakkies (pickup trucks) will be taxed because they are often used as passenger vehicles: this has caused an uproar for fear of impacts on industry.
David Powels of the National Association of Automobile Manufacturers of South Africa (NAAMSA), opposes this taxation on light commercial vehicles. The tax could increase the cost of new vehicles by 2.5% and cause a decrease in total automobile sales: in addition, Powels questions the ability to accurately predict CO2 emissions based on engine capacity. NAAMSA acknowledges the ability of carbon taxes to change consumer behavior for the betterment of the environment, but argues that this tax is not transparent enough for consumers because the taxation occurs at the time of automobile production. Powels says the tax is discriminatory because it targets new vehicles, and that the government should focus on introducing "green fuel" to South Africa.
The goal of the carbon tax is to put South Africa on a "sustainable path". South Africa has produced Long Term Mitigation Scenarios (LTMS) to address climate policy issues that consider variables such as technology, investment, and policy (including carbon taxes) and to clarify South Africa's position for potential UNFCC negotiations.
On July 1, 2010 India introduced a nationwide carbon tax of 50 rupees per metric tonne ($1.07/t) of coal both produced and imported into India. In India coal is used to power more than half of the country’s electricity generation.
India's total coal production is estimated to reach 571.87 million tons in the year ending March, 2010 and is expected to import around 100 million tons. The carbon tax expects to raise 25 billion rupees ($535 million) for the financial year 2010–2011. According to Finance Minister Pranab Mukherjee, the clean energy tax will help to finance a National Clean Energy Fund (NCEF). Industry bodies have not favored the levy and fear that the resultant higher price of coal could trigger inflation.
While many remain apprehensive, a carbon tax is a step towards helping India meet their voluntary target to reduce the amount of carbon dioxide released per unit of gross domestic product by 25% from 2005 levels by 2020. Environment Minister Jairam Ramesh told reporters in June 2010 that a domestic tax should come before a global carbon tax, and India has imposed one while others debate the issue.
Currently Japan does not have any carbon tax regulations. In December 2009, nine industry groupings opposed the carbon tax at the opening day of the COP-15 Copenhagen climate conference stating that "Japan should not consider a carbon tax as it would damage the economy which is already among the world's most energy efficient". The industry groupings represented the oil, cement, paper, chemical, gas, electric power, auto manufacturing and electronics, and information technology sectors. The sectors state that "the government has neither studied nor explained thoroughly enough why such a carbon tax is needed, how effective and fair it is and how the payments are to be used." 
In 2005, an environmental tax proposed by Japanese authorities was also delayed due to major opposition from the Petroleum Association of Japan (PAJ), other industries and consumers. The delay was "to avoid putting too much economic burden on end-users as they were already paying heavy taxes on hydrocarbon fuels amid high oil prices." The tax that was to be implemented would be 2,400 yen ($20.85 in 2005 dollars) per tonne of carbon dioxide emitted from fuels. Tax on coal would be about 1.58 yen per kilogram and that on gasoline 1.52 yen per litre (4.3 cents per gallon in 2005 dollars). Officials estimated that the tax would generate income of 37 billion yen a year for the government and result in a payment of 2,100 yen per year for an average household.
On August 22, 2008 The Chong Wa Dae, also known as the Blue house – the executive office and official residence of the South Korean head of state, confirmed a list of 40 new administrative strategy agenda, which included substitution of a carbon tax with the current transportation tax. Most revenues of the tax amounting to an annual $11 trillion won ($10.4 billion) will be financed toward the “Low Carbon, Green Growth” move, which was announced in President Lee Myung-bak’s speech marking the nation’s 63rd Liberation day the week before the announcement. A carbon tax is imposed on emissions of greenhouse gases including carbon dioxide. The direct taxation system is now applied to several European countries, such as Sweden, the Netherlands and Norway, as well as several states in North America. The temporary transportation tax, one of the major objective taxes in the country, is slated to end in 2009. About 80 percent of its yield is used in transportation-related work like road construction. Additional taxation amendment could follow with a "tax on emissions" bottom line, in possible implementations of tax discrimination according to a vehicles' size and a carbon tax on the currently tax-free thermal power plants. Taxation on emissions is inevitable in that low carbon policies take substantial budget, the government says.
In February 2010, a deputy finance minister Yoon Young-sun confirmed that South Korea is considering a carbon tax to help reduce emissions 4% from 2005 levels by 2020. This would be in conjunction with a cap-and-trade program to be implemented later this year. With a tax rate of 31,828 won (25 Euros) per ton of CO2, the South Korean government would collect 9.1 trillion won ($7.9 billion) in tax revenue based on 2007 emissions. Income from the carbon tax would be used to reduce corporate and income taxes. On July 22, 2010 Chairman Sohn Kyung-shik of the Korea Chamber of Commerce and Industry asked for the South Korean government to delay the implementation of the carbon tax: "If the government applies much stricter guidelines over carbon emissions, then companies might be burdened."
On July 13, 2010 South Korea’s government announced plans to more than double its financing for green research and development projects to 3.5 trillion won ($2.9/£1.9bn) by 2013. The finance ministry decided that the new investment will be put into a new dedicated green fund operated by the state-run Korea Finance Corporation, for distribution to private sector projects. The government said that the fund forms part of a huge low-carbon investment drive that will see it invest a total of 107.4 trillion won, or two percent of the country’s annual gross domestic product, on green projects between 2009 and 2013.
However, the government signaled that in addition to setting aside state funds, it will ask private companies to contribute 2.4 trillion won to the fund. It added that spending from the fund will be directed mainly toward business involved in greenhouse gas emissions reduction and promoting energy efficiency. In addition, the government intends to expand its system of tax breaks to cover new technologies in solar, wind and thermal power, low-emission vehicles, rechargeable batteries and next generation nuclear reactors.
The government also set a voluntary target last year (2009) to reduce 2020 emissions by four percent on 2005 levels by 2020, and is expected to soon announce plans for carbon trading scheme to begin in 2012.
In October 2009 vice finance minister Chang Sheng-ho announced that Taiwan was planning to adopt a carbon tax in 2011.  However, Premier Wu Den-yih and legislators stated that the carbon taxes would increase public suffering from the recession and that the government should not levy the new taxes until Taiwan’s economy has recovered. He opposed the carbon tax. Many Taiwanese citizens are opposed to tax increases as well. However, Chung-Hua Institution for Economic Research (CIER), the think-tank which was commissioned by the government to advise on its plan to overhaul the nation's taxes, had recommended a levy of NT$2,000 (US$61.8, £37.6) on each tonne of CO2 emissions. CIER estimated that Taiwan could raise NT$164.7bn (US$5.1bn, £3.1bn) from the energy tax and a further NT$239bn (US$7.3bn, £4.4bn) from the carbon levy on an annual basis by 2021. If Taiwan does pass the carbon tax policy, Taiwan would become the first Asian country with taxation on carbon emissions. Due to the amount of revenues from such a comparatively high carbon tax, the government is planning to subsidize low income families and public transportation by using the revenues from carbon taxes.
On the 1st of July 2012 the Australian Federal government introduced a Carbon price, a tax of $23AUD per tonne of emitted CO2 on selected fossil fuels consumed by major industrial emitters only. The revenue raised by this tax was used to reduce income tax (by increasing the tax-free threshold) and increase pensions and welfare payments slightly to cover expected price increases, as well as introducing compensation for some affected industries.
The fixed price of $23AUD in the initial financial year of 2012–2013 is scheduled to rise by 2.5% a year, until transitioning to an emissions trading scheme (ETS) in 2015–16 when the available permits will be limited in line with a pollution cap.
In 2005, the Fifth Labour Government proposed a carbon tax in order to meet obligations under the Kyoto Protocol. The proposal would have set an emissions price of NZ$15 per tonne of CO2-equivalent. The planned tax was scheduled to take effect from April 2007, and applied across most economic sectors though with an exemption for methane emissions from farming and provisions for special exemptions from carbon intensive businesses if they adopted world's-best-practice standards of emissions.
After the 2005 election, some of the minor parties supporting the Fifth Labour Government (NZ First and United Future) opposed the proposed tax, and it was abandoned in December 2005. In 2008, the New Zealand Emissions Trading Scheme was enacted via the Climate Change Response (Emissions Trading) Amendment Act 2008.
In Europe, a number of countries have imposed energy taxes or energy taxes based partly on carbon content. These include Denmark, Finland, Germany, Ireland, Italy, the Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK. None of these countries has been able to introduce a uniform carbon tax for fuels in all sectors. For a review of Europe's experience with carbon taxation see Andersen (2010).
During the 1990s, a carbon/energy tax was proposed at the EU level but failed due to industrial lobbying. In 2010, the European Commission considered implementing a pan-European minimum tax on pollution permits purchased under the European Union Greenhouse Gas Emissions Trading System (EU ETS) in which the proposed new tax would be calculated in terms of carbon content rather than volume, so that fuels with high energy concentrations, despite their subsequently high carbon content, will no longer carry the same traditionally low price.  According to the European Commission, the new plan will charge firms a minimum tax per metric tonne of carbon dioxide emissions  at a suggested rate of €4 to €30 per tonne of CO2.
As of the year 2002, the standard carbon tax rate since 1996 amounts to 100 DKK per metric ton of CO2, equivalent to approximately 13 Euros or 18 US dollars . Net carbon emission tax from fuel combustion can vary depending on the level of pollution each source emits, the tax rate varies between 402 DKK per metric ton of oil to 5.6 DKK per metric ton of natural gas and 0 for non-combustible renewables. The rate for electricity is 1164 DKK per metric ton or 10 øre per kWh, equivalent to .013 Euros or .017 US dollars per kWh. The CO2 tax applies to all energy users, including the industrial sector. But the industrial companies can be taxed differently according to two principles: the process the energy is used for, and whether or not the company has entered into a voluntary agreement to apply energy efficiency measures. Danish policies like this provide incentives for companies to put in place more sustainable practices similar to a cap and trade program on carbon dioxide.
In 1992 Denmark issued a carbon dioxide tax which was about $14 for business and $7 for households, per ton of CO2 . However, Denmark offers a tax refund for energy efficient changes. One of the main goals for the tax is to have people change their habits, because most of the money collected would be put into research for alternative energy resources. Denmark also needs to be behind this by actually showing they are investing and not just collecting money.
Finland was the first country in the 1990s to introduce a CO2 tax, initially with few exemptions for specific fuels or sectors. Since then, however, energy taxation has been changed many times and substantially. These changes were related to the opening of the Nordic electricity market. Other Nordic countries exempted energy-intensive industries, and Finnish industries felt disadvantaged by this. Finland did place a border tax on imported electricity, but this was found to be out of line with EU single market legislation. Changes were then made to the carbon tax to partially exclude energy-intensive firms. This had the effect of increasing the costs of reducing CO2 emissions (p. 16).
Vourc'h and Jimenez (2000, p. 17) stated that arguments based on competitive losses needed to be viewed with caution. For example, they suggested that carbon tax revenues could be used to reduce labour taxes, which would favour the competitiveness of non energy-intensive industries.
On September 10, 2009, France detailed a new carbon tax with a new levy on oil, gas and coal consumption by households and businesses that was supposed to come into effect on January 1, 2010. The new carbon tax would be 17 euros (25 US dollars) per tonne of carbon dioxide (CO2) for households and businesses, which will raise the cost of a liter of unleaded fuel by about four cents (25 US cents per gallon). The total estimated income from the carbon tax would have been between 3 and 4.5 billion euros annually, with 55 percent of profit coming from households and 45 percent coming from businesses. The tax will not apply to electricity as mostly produced by France's network of nuclear reactors.
On December 30, the bill was blocked by the French Constitutional Council. It considered the bill included too many exceptions and said they were unconstitutional. It condemned the exemptions for industries as being unequal and inefficient, pointing out that less than half the whole emissions would have been taxed and saying it was unfair to apply the tax only to fuels and heating, which accounted for a limited part of carbon emissions. Discounts and exceptions would have applied to many aspects of industry and agriculture, including fishing, trucking, and farming. French President Nicolas Sarkozy, despite his vow to "lead the fight to save the human race from global warming", did not support the bill, saying that France needed support from the rest of the European Union before it would try and proceed with a carbon tax.
In 2004, following a policy review, the Irish Government rejected the introduction of a carbon tax as a policy option. However in 2007 a Fianna Fáil-Green Party coalition government was formed, and promised to reconsider the matter. In the 2010 budget the country's first carbon tax was introduced. The new tax was levied at €15 per tonne of CO2 emissions (approx. US$20 per tonne).
The carbon tax applies to kerosene, marked gas oil, liquid petroleum gas, fuel oil, and natural gas. The Natural Gas Carbon Tax does not apply to electricity because the cost of electricity is already included in pricing under the Single Electricity Market (SEM). Similarly, natural gas users are exempt from the tax if they can prove they are using the gas to "generate electricity, for chemical reduction, or for electrolytic or metallurgical processes"."A partial relief from the tax is granted for natural gas delivered for use in an installation that is covered by a greenhouse gas emissions permit issued by the Environmental Protection Agency. The natural gas concerned will be taxed at the minimum rate specified in the EU Energy Tax Directive, which is €0.54 per megawatt hour at gross calorific value." Pure biofuels are also exempt. The Economic and Social Research Institute has estimated the tax will cost between about €2 and €3 a week per household, or about €156 per year: a survey from the Central Statistics Office reports that Ireland's average disposable income was almost €48,000 in 2007.
There is concern that the carbon tax may disproportionately affect elderly persons and low-income households. One group, Active Retirement Ireland, proposes that "an extra allowance of €4 per week be made to people in receipt of the State pension for the 30 weeks currently covered by the fuel allowance," they suggest that "home heating oil be added to the categories covered under the Household Benefit Package, which is available to older people in receipt of the State pension".
The tax is paid by companies to the Collector General. Fraudulent violation is punishable under section 1078 of the Taxes Consolidation Act 1997 which allows for a jail sentence of up to 5 years or a fine of no more than €126,970. Failure to comply with the tax violates section 73 of the Finance Act of 2010. Payment for the first accounting period was due in July 2010.
The Netherlands initiated a carbon tax in 1990. However, in 1992 it was replaced with a 50/50 carbon/energy tax called the Environmental Tax on Fuels, the taxes are assessed partly on carbon content and partly on energy content. The charge was transformed into a tax and became part of general tax revenues. As such, it fell under the administration of the Ministry of Finance. The general fuel tax is collected on all hydrocarbon fuels. Fuels used as raw materials are not subject to the tax. Tax rates are based 50/50 on the energy and carbon contents of fuels. In 1996 The Regulatory Tax on Energy, another 50/50 carbon/energy tax, was also implemented. The Environmental tax and the regulatory tax are 5.16 Dutch guilder, or NLG, (~$3.13) or per metric ton of CO2 and 27.00 NLG (~16.40) per metric ton CO2 respectively. Under the general fuel tax, electricity is not taxed, though fuels used to produce electricity are taxable. Energy-intensive industries used to benefit from preferential rates under this tax but the benefit was cancelled in January 1997. Also, since 1997 nuclear power has been taxed under the general fuel tax at the rate of NLG 31.95 per gram of uranium-235.38 The European Environment Agency put out an Executive Summary stating "Although the 5th Environmental Action Programme of the EU in 1992 recommended the greater use of economic instruments such as environmental taxes, there has been little progress in their use since then at the EU level." However, "at Member State level, there has been a continuing increase in the use of environmental taxes over the last decade, which has accelerated in the last 5–6 year...Countries including the Netherlands and the United Kingdom."
More recently, in 2007, The Netherlands introduced a Waste Fund that is funded by a carbon-based packaging tax. This tax encourages producers to create packaging that is recyclable and was implemented to help reach the goals of recycling 65% of used packaging by 2012. The company Nedvang (Nederland van afval naar grondstof or The Netherlands from waste to value), which was set up in 2005, is the largest organization supporting producers and importers of packaged goods reaching individual company goals under the Dutch packaging decree. This decree was signed in 2005 and states that producers and importers of packaged goods are responsible for the collection and recycling of that waste, and that at least 65% of that wast has to be recycled. Producers and importers can choose to reach the goals on an individual basis or by joining an organization like Nedvang.
The Carbon-Based Tax on Packaging consists of taxing:
|This section's tone or style may not reflect the encyclopedic tone used on Wikipedia. (April 2010)|
In January 1991, Sweden enacted a CO2 tax of 0.25 SEK/kg ($100 or EUR 72 per ton) on the use of oil, coal, natural gas, liquefied petroleum gas, petrol, and aviation fuel used in domestic travel. Industrial users paid half the rate (between 1993 and 1997, 25% of the rate), and certain high-energy industries such as commercial horticulture, mining, manufacturing and the pulp and paper industry were fully exempted from these new taxes.
In 1997 the rate was raised to 0.365 SEK/kg ($150 per ton) of CO2. In 2007, the tax was SEK 930 (EUR 101) per ton of CO2. The full tax is paid in transport, space heating, and non-combined heat and power generation. Owing to the many exemptions, oil accounts for 96% of the revenues from the tax, although it produces less than three-quarters of CO2 from fuel combustion.
The tax is credited with spurring a significant move from hydrocarbon fuels to biomass. As Swedish Society for Nature Conservation climate change expert Emma Lindberg said, “It was the one major reason that steered society towards climate-friendly solutions. It made polluting more expensive and focused people on finding energy-efficient solutions.”
“It increased the use of bioenergy,” said University of Lund Professor Thomas Johansson, former director of energy and climate at the UN Development Programme. “It had a major impact in particular on heating. Every city in Sweden uses district heating. Before, coal or oil were used for district heating. Now biomass is used, usually waste from forests and forest industries.”
In 1993, the UK government introduced the fuel duty escalator (FDE), an environmental tax on retail petroleum products. The tax was explicitly designed to reduce carbon dioxide emissions in the transport sector. Since carbon is in fixed ratio to the quantity of fuel, the FDE roughly approximated a carbon tax. The transport lobby in the UK was extremely critical of the FDE. The FDE, which was the UK's only "real" carbon tax, failed because of the political criticism it provoked, and the automatic increase of the FDE was cancelled in 1999. Increases in fuel tax have since been discretionary.
The politically damaging fuel protests in 2000 contributed to the government decision to reduce the real rates of fuel tax. At the time, tax and duty represented more than 75% of the total pump price. In money terms, the past increments of the FDE remain in force, but in real terms, increments have been reduced by the rate of inflation. In 2006, tax represented about ⅔ of the pump price.
In addition, the UK's Climate Change Levy was introduced in 2001.
Norway introduced a CO2 tax on hydrocarbon fuels in 1991. The tax started at a high rate of US$51 per metric ton of CO2 on gasoline, with an average tax of US$21 per metric ton The tax was also applied to diesel, mineral oil, oil and gas used in North Sea extraction activities. The International Energy Agency's (IEA) 2001 Review of Norway in the Energy Policies of IEA Countries stated that "since 1991 a carbon dioxide tax has applied in addition to excise taxes on fuel." It is among the highest carbon taxes in the OECD. Carbon taxation is also applied to the production of oil and gas offshore. The IEA estimates for revenue generated by the CO2 tax in 2004 were 7,808 million NOK  (about US$1.3 billion in 2010 dollars).
According to IEA 2005 Review of Norway, Norway's CO2 tax is its most important climate policy instrument, and covers about 64% of Norwegian CO2 emissions and 52% of total GHG emissions. Some industry sectors have been granted exemptions from the tax to preserve their competitive position. Various studies in the 1990s, and an economic analysis by Statistics Norway, have estimated the effect of the CO2 tax to be a reduction of 2.5–11% of Norwegian emissions under a business-as-usual approach (i.e., the predicted emissions that would have occurred without the tax). However, even with the carbon tax, Norway's per capita emissions rose by 15% between 1991 (when the carbon tax was introduced) and 2008.
In January 2008, Switzerland implemented a CO2 incentive tax on all hydrocarbon fuels, such as coal, oil and natural gas, unless they are used for energy. Gasoline and diesel fuels are not affected by the CO2 tax. The tax is collected by the Swiss Federal Customs Administration. It is an incentive tax because it is designed to promote the economic use of hydrocarbon fuels. The tax amounts to CHF 12 per metric tonne CO2 (US $11.41 per metric tonne CO2), which is the equivalent of CHF 0.03 per litre of heating oil (US $0.108 per gallon) and CHF 0.025 per m3 of natural gas (US $0.024 per m3). This tax comes from Switzerland's 1999 Federal Law on the Reduction of CO2 (CO2 Law). Although Switzerland prefers to rely on voluntary actions and measures to achieve emissions reductions, the CO2 Law mandated the introduction of a CO2 tax if voluntary measures proved to be insufficient. In 2005 the federal government decided that additional measures were needed to achieve emissions reductions and meet Kyoto Protocol commitments of an 8% reduction in greenhouse gas emissions below 1990 levels between 2008 and 2012. In 2007, the CO2 tax was approved by the Swiss Federal Council, coming into effect 2008. In 2010, the highest tax rate will be CHF 36 per metric tonne of CO2 (US $34.20 per metric tonne CO2).
Companies are allowed to exempt themselves from the tax by participating in a Swiss cap-and-trade emissions trading scheme where they voluntarily commit to legally binding targets to reduce their CO2 emissions. Under this scheme, emission allowances are given to companies for free, and each year emission allowances equal to the amount of CO2 emitted must be surrendered by the company. Companies are allowed to sell or trade excess permits. However, should a company fail to surrender the correct amount of allowances, they must pay the CO2 tax retroactively for each tonne of CO2 emitted since the exemption was granted. About 400 companies take part in trading CO2 emission credits under this program. In 2009, for the second year in a row, the companies returned enough credits to the Swiss government to cover their CO2 emissions for the year. The 2009 report shows that companies emitted only about 2.6 million tonnes of CO2, falling well below the total permissible quantity of 3.1 million tonnes. The Swiss carbon market still remains fairly small, with few emissions permits being traded. Swiss domestic law tends to favor the use of a CO2 tax to achieve emissions reductions and this preference for taxes combined with an immature carbon market could partially explain why Switzerland has not yet joined the European Union Emission Trading Scheme (EU ETS).
The tax is revenue neutral, and its revenues are redistributed proportionally to companies and to the Swiss population. For example, if the population bears 60% of the tax burden, they will receive 60% of the redistribution. For companies, revenues will be redistributed to all companies, except those who chose to exempt themselves from the tax through the cap-and-trade program. The revenue is given to the companies in proportion to the total payroll of their employees and is distributed through an AHV compensation fund (Federal Old Age and Survivors' Insurance) that pays the relevant amount of revenue to the company. The revenues from the tax that were paid by the Swiss population are redistributed equally to all Swiss residents through health insurance companies and a deduction on their insurance premium. In June 2009 the Swiss Parliament decided to allocate about one-third of the revenue from the carbon tax to a 10 year building program for climate-friendly building renovations. This program promotes building renovations, the use of renewable energies, the utilization of waste heat, and building engineering.
As part of the early-redistribution program decided by the Swiss Federal Council in 2009, the tax revenue from 2008, 2009 and 2010 are being distributed in 2010. In 2008 alone, the tax of CHF 12 per tonne of CO2 raised around CHF 220 million (US $209 million) in revenue. As of June 16, 2010, a total of around CHF 360 million (US $342 million) have become available for distribution to the Swiss population and economy. It is estimated that in 2010, at the highest tax rate of CHF 36 per tonne of CO2, the revenue from the tax will be about CHF 630 million (US $598 million). Out of the projected CHF 630 million, CHF 200 million (US $190 million) will be allocated for the building program and the remaining CHF 430 million (US $409 million) will be redistributed in 2010 to the population and the economy. The International Energy Agency (IEA) commends Switzerland's CO2 tax for its excellent design and notes that the recycling of the tax revenues to all citizens and enterprises is "sound fiscal practice".
Since 2005, transport fuels in Switzerland have been subjected to the Climate Cent Initiative surcharge—a surcharge of CHF 0.015 per litre on gasoline and diesel (US $.0038 per gallon) --which will remain in place until the end of 2012. However, this surcharge can be supplemented with a CO2 tax on transport fuels if emissions reductions are not satisfactory. In their 2007 review, the IEA recommended that Switzerland implement a CO2 tax on transport fuels or increase the Climate Cent surcharge to better balance the high costs of meeting emissions reductions targets across sectors.
Switzerland is currently on track to meet its Kyoto Protocol commitment of an 8% reduction in greenhouse gas emissions below 1990 levels between 2008 and 2012. The combination of the CO2 tax and other voluntary measures by businesses and private individuals is enabling Switzerland to achieve these reduction goals.
In 1997 Costa Rica imposed a 3.5 percent carbon tax on hydrocarbon fuels. A portion of the funds generated by the tax go to "Payment for Environmental Services" (PSA) program which gives incentives to property owners to practice sustainable development and forest conservation. Approximately 11% of Costa Rica's national territory is protected by the plan. The program now pays out roughly $15 million a year to around 8,000 property owners.
In the 2008 Canadian federal election a carbon tax proposed by Liberal Party leader Stéphane Dion, known as the Green Shift, became a central issue in the campaign. It would have been revenue-neutral, with increased taxation on carbon being balanced by tax cuts for individual citizens. However, it proved to be unpopular and contributed to the defeat of Liberal Party with its worst share of the popular vote since Confederation.
Although there is no federal carbon tax, some Canadian provinces do have carbon taxes:
There is no nationwide carbon tax levelled in the USA, although a few states have introduced the tax.
In November 2006, voters in Boulder, Colorado passed what is proclaimed to be the first municipal 'carbon tax'. It is a tax on electricity consumption (utility bills) with deductions for using electricity from renewable sources (primarily Xcel's WindSource program). Their goal is to reduce carbon emissions to those outlined in the Kyoto Protocol; specifically to reduce their emissions by 7% below 1990 levels by 2012. Tax revenues get collected by Xcel Energy and are directed to the city's Office of Environmental Affairs to fund programs to reduce community-wide greenhouse gas emissions.
The Climate Action Plan (CAP) tax is expected to raise $1.6 million dollars in 2010. The tax was increased to a maximum allowable rate by voters in 2009 in order to meet CAP goals. Currently the tax is set at $0.0049 /kWh for residential users (ave. $21 per year), $0.0009 /kWh for commercial (ave. $94 per year), and $0.0003 /kWh for industrial (ave. $9,600 per year). The revenues from the tax are expected to decrease over time as businesses and residents reduce their energy use and begin to use more solar and wind power. The tax will expire on March 31, 2013.
Some states are considering the imposition of carbon taxes. For example in 2006, the state of California, passed AB-32 which requires California to reduce greenhouse gas emissions. In an effort to execute AB-32 (Global Warming Solutions Act of 2006), the California Air Resources Board put forth the idea to implement a carbon tax but has yet to reach agreement with the Western States Petroleum Association who represent the refineries in the state. The WSPA holds that AB-32 only allows a carbon tax to cover administrative costs.
In May 2010 Montgomery County, Maryland passed the nation's first county-level carbon tax. The new legislation calls for payments of $5 per ton of CO2 emitted from any stationary source emitting more than a million tons of carbon dioxide during a calendar year. There is only one source of emissions fitting the criteria laid out by the council, an 850 megawatt coal-fired power plant owned by Mirant Corporation. The tax is expected to raise between $10 million and $15 million for the county which is facing a nearly $1 billion budget gap The plan calls for half of revenue to go toward creating a low interest loan plan for county residents to invest in residential energy efficiency upgrades. The County's energy supplier buys its energy at auction, so Mirant must continue to sell its energy at market value, which means no discernible increase in energy costs will be felt by the counties residents. In June 2010 the Mirant Corporation opened a lawsuit against the county to stop the tax. It is expected that litigation will take years to be completed 
Cooper (1998, 2001) has been a leading proponent of a harmonized carbon tax (a tax where the country setting the tax keeps all the revenues). Under his proposals, all participating nations would be subject to a tax at a common rate, thus achieving cost-effectiveness. A number of problems have been suggested with Cooper's proposals:
Former US Vice President Al Gore strongly backed a carbon tax in his book, Earth in the Balance, but this became a political liability after the Republicans attacked him as a "dangerous fanatic". In 2000, when Gore ran for President, one commentator labeled Gore's carbon tax proposal a "central planning solution" harking back to "the New Deal politics of his father." 
Former US Federal Reserve chairman Paul Volcker suggested (February 6, 2007) that "it would be wiser to impose a tax on oil, for example, than to wait for the market to drive up oil prices."[clarification needed]
Monica Prasad, a Northwestern University sociologist, wrote about Denmark's carbon tax in the New York Times in 2008. In her view, the Danish carbon tax served as an example of how to reduce emissions in the US. Prasad argued, however, that a critical component for Denmark's success in reducing carbon emissions from 1990–2005 was that the tax revenues from the carbon tax were dedicated to subsidies for firms to use for alternative, environmentally cleaner sources of energy.
An alternative government policy to a carbon tax is a cap on greenhouse gas (GHG) emissions. Emission levels of GHGs are capped and permits to pollute are freely allocated (called "grandfathering") or auctioned to polluters. Auctioning permits has significant economic advantages over grandfathering. In particular, auctioning raises revenues that can be used to reduce distortionary taxes and improve overall efficiency. A market may be allowed for these emission permits so that polluters can trade some or all of their permits with others (cap-and-trade). A hybrid instrument of a cap and carbon tax can be made by creating a price-floor and price-ceiling for emission permits. A carbon tax can also be implemented concurrently with a cap.
Unlike a cap system with grandfathered permits, a carbon tax raise revenues. If the revenues are used to reduce other distortionary taxes, this can improve the efficiency of the tax. On the other hand, a cap with grandfathered permits can have an efficiency advantage of being applied to all industries. This provides an equal incentive at the margin for all polluters to reduce their emissions. This is an advantage over a tax that exempts or has reduced rates for certain sectors.
Both cap-and-trade and carbon taxes give polluters a financial incentive to reduce their GHG emissions. Carbon taxes provide certainty regarding emission prices, while a cap provides certainty regarding emissions quantity. In a literature assessment, Fisher et al.. (1996:430) concluded that the choice between an international quota (cap) system, or an international carbon tax, remained ambiguous. Lu et al. (2012) compared a carbon tax, an emission trading, and command-and-control regulation at the industrial level. Their abstract concludes that market-based mechanisms would perform better than emission standards in achieving emission targets without affecting industrial production.
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According to the Carbon Trust (2009), a carbon tax suffers from combining a set price for carbon along with a transfer of revenue from industry to government. This, it is argued, guarantees that the tax will not be set at the appropriate level, but will instead be determined by the politics of large-scale revenue transfers. With a cap, however, the revenues from emission allowances can be separately negotiated with industry.
Another difficulty with taxes are whether the emissions reductions they bring about actually exist – that is, the "additionality" of emissions reductions (Carbon Trust, 2009). Additionality requires a comparison of observed emission reductions against an estimate of the emission reductions that would have taken place without the presence of the tax (the emissions "baseline"). The additionality of a carbon tax is difficult to establish due to effect that other policies have on emissions, e.g., subsidies and regulations. It would, for example, be possible for a government to introduce a carbon tax and then offset the impact of this by making other changes in tax structures.
In most instances, firms pass the costs of a carbon price onto consumers. Studies typically find that poor consumers spend a greater proportion of their income on energy-intensive goods and fuel. Therefore cost increases in energy tend to impact the poor worse than the rich.
Studies by Metcalf et al. (2008) and Metcalf (2009) consider the possible distributional impacts of carbon taxes in the United States. The 2008 study considers three recent tax bills introduced to the US Congress. The taxes themselves are highly regressive, but when revenues from the tax are returned lump-sum, the taxes become progressive. The 2009 study looks at a carbon tax combined with a reduction in payroll taxes. It is found that this combination can be distributionally neutral. With an adjustment in Social Security payments for the lowest-income households, the carbon tax policy can be made progressive.
A study by Ekins and Dresner (2004) considers the distributional impact in the UK of introducing a carbon tax and increasing fuel duty. It is found that a carbon tax can be made progressive, but that the tax would make those currently worst affected by fuel poverty more badly off. Of the policy options looked at for transport, the most effective in compensating low-income motorists is found to be an increase in fuel duties and the abolishment of vehicle excise duty.
In Ireland it was speculated that a carbon tax would be introduced in the Government's supplementary April 2009 budget. This is a matter of concern for rural dwellers, who make up about one-third of the Irish population. The NGO Irish Rural Link  has noted that according to the Irish Economic and Social Research Institute (ESRI) “a carbon tax would weigh more heavily on rural households”. Irish Rural Link claim that experience from other countries has shown that carbon taxation will only succeed if it is part of a comprehensive package of measures, which includes reducing some other taxes which does not appear to be the Government's approach. IRL claim that in the rush to introduce revenue raising measures the regressive effects of a carbon tax will not be adequately offset.
42% of Ireland's population live in rural areas. This figure is arrived at using spatial analysis to identify areas with less than 150 persons per square kilometre (the OECD definition of 'rural').