Can someone explain how carbon taxes offset the negative environmental impact fossil fuels have on our environment?
In: 6
They don’t, they merely pass the costs along to other companies or consumers. The idea is, a company is taxed say 10 dollars for every 10 cubic feet of carbon it produces. The idea is that if they produce less carbon, the tax will be lower, so theoretically they’re incentivized to produce less. But, right now there’s often an option for companies to buy extra credits, so they don’t actually have to reduce their emission, they just pay a fee. Which usually just gets rolled into the price of whatever they’re producing, meaning in the end customers pay for it. And if a company isn’t large enough to buy extra, they pay the taxes, or if there’s a cap on how much CO2 is allowed to be produced per company, if they do not have the resources to upgrade or retrofit existing CO2 production, they may just close entirely, or dramatically cut back production.
The theory of the Carbon tax is to punish companies for having high CO2 emissions and encourage them to adopt greener technologies to offset the cost.
The taxes in turn are used by the government to fund green technology initiatives
At least in theory… in practice it depends on how the government manages the program.
Many argue that carbon taxes just increase costs to consumers without much benefit and that the government would be better off giving incentives instead of punishment.
They move the price of dealing with the effect of carbon emissions onto the producer of those emissions. A price which affects all of society but which is not considered by the producer is called a negative externality, and is exactly what we have with carbon emissions. By moving the cost of cleanup onto the producer you get a more appropriate price for whatever the thing is.
So for example consider electricity generation. A given supplier needs to buy electricity from producers: they don’t care whether that is wind or coal power. By including the price of carbon in the coal power we make it less competitive, so less coal power will be bought and less coal will be burned.
They don’t directly.
What they do is give a financial incentive to companies to reduce the emissions. One of the driving factors behind companies resisting the steps to reduce emissions is cost of creating and implementing the reductions. So the idea is to use taxes to make the cost of NOT doing so higher than the cost of reduction.
With the pitched upside that the money gained from the taxes can be used to fund green initiatives and other programs.
But if the taxes aren’t high enough, they just become another cost of doing business.
Editing to add another down side I forgot but saw in u/DarkAlman’s answer. The taxes also don’t work when the company is able to use the extra tax to justify higher prices. So they just pass the tax on to customers and keep their bottom line.
Carbon taxes help incorporate the true cost of burning fossil fuels upfront in a monetary form rather than later as in climate change, air pollution, etc.
overall they do nothing to offset it.
they are meant to discourage abusing on emissions by fining companies going over the limit and these funds collected in this manner are meant to be used in initiatives to fund “greener” tech.the intent is not going green should be more expensive to incentivize change.
the problem is that this setup is completely undermined by the fact these same companies can buy ” carbon credits” and this expenditure is then passed along to consumers..
Probably the simplest explanation.
Here in California – gas is $5.17 a gallon.
If gas was $50 a gallon, regular people couldn’t afford it, and as result, only the rich could afford to pollute.
That’s the approach to environmentalism that’s popular here.
If we do this companies, they just charge us more. If you tell grocery stores that meat is polluting, and that have to pay $5 a lb in tax on it. Then the company will just charge you $5 a lb more for it.
Without carbon taxes CO2 emissions that harm the environment are not an impact to the people involved, what is called a negative externality. If two factories release 100t of CO2 per day, and could spend money to reduce that emission, they won’t do it because it costs money and the harm doesn’t impact their bottom line. The harm impacts everyone, but to a very small degree.
If you put a tax on carbon emissions then both factories have an additional cost of doing business. They can pass that on to their consumers in the form of higher prices. This balances the externality, everybody is harmed by CO2 and everybody pays a little more.
In this situation, markets are more effective, maybe Factory A can change their process by installing a different machine or process. They can cut 30t of emissions, and have to raise prices less. That makes their product more affordable, and they start to take sales and profits from the other factory.
In this market situation, Factory B might cut 40t of emissions through a more extensive change. Now their product is cheaper, and some customers move to it. All consumers are still paying more, and they hope the government is using that money for something good, but the companies have made major changes to reduce emissions – what we all want them to do – and they will do more if they can think of a way to do that.
Carbon emissions impact all of us due to climate change reducing farming output, increasing natural disasters, creating climate refugees, etc. This has a real-world economic cost ($$$) associated with it. But carbon producers don’t experience those costs, we do, resulting in market failure.
The obvious solution, universally supported by economists worldwide, is that we simply charge carbon producers a carbon tax proportional to the economic cost of climate change (per ton of CO2 emitted). From there, the free market would fix itself, since then the TRUE cost of carbon emissions would finally be factored in.
It would raise prices of various polluting products like oil, plastics, cement, beef by taking into account their externalized costs. Like killing the world.
If oil is more expensive, it makes more sense to switch to cleaner alternatives.
The beauty of a carbon tax is that it depends on people be greedy, which is a pretty safe bet.
Latest Answers