The Idea of Carbon Added Tax


Do you will that I will present my short thought of economical solution CO2 emissions reduction. If we agree that climate change is a result of human activity and we make the decision to take action for emissions reductions we must know that carbon credit is not the only option. In the opinion of many well-known economists, the carbon tax is an effective alternative to carbon credit which is a complicated mechanism and for this reason ineffective. An idea of carbon credit required the strict control of every chimney by thousands of civil servants. Fortunately, there is an alternative to emission trading this alternative is the carbon tax.










The carbon tax already existed in British Columbia, Chile, Iceland, Sweden, Switzerland, Holland, Norwegian and RSA. In general, the idea comes down to the imposition of tax on every fossil fuel proportionally to CO2 emissions formed during the combustion. Its aim is to cover the hidden costs of climate change in the price of fossil fuels.


   The carbon tax was considered a good solution by many economists as Nobel Prize winner Milton Friedman, Arthur Laffer, Greg Mankiw, Jeffrey Sachs or Alan Greenspan.

   One question remains what to do with the money raised with tax. Do we have to spend this money on the salaries of civil servants, reduction of the budget deficit, or maybe for the army or social care? And here I will make my own contribution to the idea of the carbon tax. In my opinion, it will probably be best to invest that money in emission-free sources of energy. In other words, for money obtained from the carbon tax, we should build wind, solar or nuclear power plants, electric or hybrid cars, everything that can contribute to emissions reduction. In this way, we will be able to reduce the demand for the fossil fuels both from the demand side (higher prices of the fossil fuels will make fossil fuels uncompetitive ) and as well from the side of the supply (newly create emission-free sources of energy will cause the fuel to become unnecessary).

  The only question who will invest taxpayers money in the wind, solar or nuclear power plants? Who will buy electric or hybrid cars? The state or private individuals? If we assume that the state will invest taxpayers money into emission-free sources of energy it can lead to the creation of the new energy communism with all the consequences. The second question ethical. Is this OK to the owner of the carbon power plant to built him state, emission-free competition for tax money which he paid? And on a micro-scale. What to do with a taxi driver, who will buy him an electric or hybrid car?

  I have a free-market point of view on economics and in my opinion, emission-free sources of energy should be created in the private sector. And all of this from nuclear power plants to solar panels and electric motorbikes. My idea is that the whole money raised from the carbon tax should be transferred to emitters of CO2 as a targeted subsidy in order to they will have funds for investment in emission-free sources of energy. The next question arises on how to organize it not to employ a new army of officials. Without bureaucracy or complicated regulations. Well, there is a solution to this problem. All that we need to do is the modification of Value Added Tax which existed in most countries in the Word. How can it work?

 The first phase: Tax collection.

   The carbon tax should be collected in the time of extracting fossil fuel for surface or in the moment of customs clearance of fossil fuel in the case of import from abroad. There is no necessity to employ new functionaries to handle tax collection. Those officials who every day collecting VAT, duty, and excise are enough. It is only necessary to reprogram the computers of the tax and customs office. We do not have to be afraid of fo abuse. It's hard to hide from the tax office fact of extraction of coal heaps by a mining company or arrival of the tanker to the port. So the problem of tax collection is solved.

 Phase two: tax settlement.

   Each seller of fossil fuel must be obligated to the settlement of the carbon tax on the invoice. This also shouldn't be difficult. We must only reprogramme computers and cash registers. The amount of the tax shouldn't depend on fossil fuel value but on CO2 emission after fuel combustion. Only the first producer or fossil fuel importer will be taxpayer next seller will be only obligate to settlement the tax on the invoice. The carbon tax settlement takes so long as the last buyer will burn the fuel and will emit CO2 into the atmosphere.

 Phase three: granting subsidies to emitters.

   The moment when the emitter burns the fuel, the emitter becomes the last link of the chain. Now the emitter is allowed to apply for a targeted subsidy which can be used only on investment in the emission-free source of energy. The environmental ministry pays a grant equal to the amount of the carbon tax form invoices for burnt fuel. Then the emitter makes the investments in emission-free sources of energy simultaneously informing the environmental ministry what exactly subsidies are issued and where exactly are purchased assets. Receiving subsidy emitter is obligated to inform where are windmills, solar panels, water plans or electric cars. Now the only task of ministry officials is to check if the money was correctly spent. It should not be difficult because this is very easy to check if the power plant really has been built.

 Phase four: the return of investment profits.

   Investment in emission-free sources of energy sooner or later will bring profit to the investor. Of course, the income is taxable so the benefits are mutual between the state and the investor. Investments in emission-free sources of energy have a positive impact on the economy so everyone benefits.

 Phase five: emissions reduction.

   Emission reduction takes place in two ways. Firstly, taxed fuel becomes more expensive and therefore less competitive in the global energy market than emission-free sources of energy what contributes to the decline in demand for fossil fuels. On the other hand, promoted by the carbon tax investments in emission-free sources of energy increase the supply of such assets on the energy market. In the condition of application of this tax emission-free sources of energy have lower gross costs and a significant competitive advantage over these sources of energy which emit CO2. In this way, we reach the goal of the carbon tax that is a reduction of CO2 emissions. As time passes, CO2 emission will go down and the supply of emission-free sources of energy grows. It can be predicted that investments in emission-free sources of energy will come both from the carbon tax and portfolios of private investors. All this together will lead to a CO2 emission reduction. And that's what it's about.

Author Piotr Bartyś


I suggest calling this tax CAD as an abbreviation of words Carbon Added Tax.

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