Therefore, carbon tax was first introduced in Denmark, Norway, Sweden and Finland in the early asses and has been implemented by a number of countries all around the world (Gale 2013, up. 5). It makes companies and consumers start to be aware of the impact of future climate by paying the total social costs including the environmental costs rather than just private cost (the cost relating to producing products and services only).
Placing the environmental costs on the products and services through carbon tax would create the market incentives for conserving the source of energy and starting to use renewTABLE energy sources universally to minimize air pollution. It could also encourage more people to walk or ride icicles instead of driving cars or buses that could increase economic welfare as well as pubic health in overall such as reduce the risk of heart attacks (Petting 2013).
Besides, the permanent change in prices from implementing carbon tax on goods would require the firms to pay costs to clean up environmental impacts that they create as well as stimulate new private sectors to research and innovate the new ways of developing energy-saving technology, hydrogen engines and producing renewTABLE energy and energy- efficient goods. (Gale 2013, up. 6). In the energy market, the amount of arbor emissions from burning fossil fuel would be imposed on fossil fuel suppliers.
The price of oil, coal and natural gas would include the carbon tax that ultimately passed to wholesales users and consumers through the electricity and gasoline bills. Since coal generating the greatest amount of carbon per unit of energy would be levied at higher rate than oil and natural gas per unit of energy, the demand of coal would shift to natural gas. While coal would reduce from 37. 7% of power generation, which makes annual revenue of coal production drop by $13 billion per year between 2014 and 023, natural gas’ share of power generation would increase from 27. % to 36. 7% and generate to an additional $35 billion per year to mineral owners and natural gas producers according to Houses and Moan’s modeling. Moreover, renewTABLE generation and nuclear would grow as well from 34% to 38. 9% of overall electricity supply (Houses 2012). Moreover, carbon tax should be revenue neutral in theory, which means the tax generated from levying the carbon emissions could be used to lower the other taxes because carbon tax would offer enough revenue to offset the payroll tax and reduce the reporter income tax significantly.
However, it seems to be hard for US Government to estimate the external cost of pollution and how to tax the carbon emissions reasonably. There are two different opinions adjusting the carbon tax rate. According to William Cline (Senior Fellow at the Peterson Institute), the tax on the carbon dioxide emissions should be $25 per ton based on the MIFF figures.
On the other hand, according to his latest research using the Energy Information Administration’s National Energy Modeling System, Tremor Houses (Visiting Fellow at the Peterson Institute) has estimated that a carbon tax should start at $20 per ton of the carbon dioxide emissions in 201 3 and increase 5% per year at an inflation-adjusted rate. It could not only lower the effective corporate income tax rate by up to one third, but also reduce the carbon dioxide emissions in US by 660 million tons per year and the overall greenhouse gas emissions by 2020 would be lower than 15% of its level in 2015.
On average, between 2014 and 2023, both of the tax rates would provide $1 28 to $1 30 billion in new federal revenue a year in US (Houses 2012). This revenue could be used to repair the damages, which re caused by the pollution to environment as well as subsidize alternatives such as green electricity and solar power. On the Other hand, carbon tax would face to some disadvantages to apply in the practice. It is argued that the carbon tax is hard to be implemented because it cannot be hard to measured how much pollution that a firm may produce and imposed the tax on the companies form the other countries.
Furthermore, building green engines such as nuclear power plant could also cost a hug amount of money. Due to the influence of the inflation, the rise of the carbon tax leads to the Geiger energy prices that make the poorer households have to spend more money on energy. According to the research of the impact a carbon tax on the Australian economy, different level of households such as rich people and poor people will experiences differently in changing prices of commodities.
It is easy for rich people to reduce the energy consumption by acquiring more energy saving appliances or switching toward low cost heating and power generation like solar systems. However, poorer peoples have to face more tax burden with the carbon tax implication. They seem to carry higher burden than the rich people. According to the statistic of the carbon tax applying to households, there are huge changes for people who earn low income including pensioners. For example, the poorest people have to face 3. 6 percentage of tax burden while richer people only have around 1. To 1. 1 percentage of tax burden (McNeill, J. P. 26). Therefore, it leads poorer people cannot afford the change of price and application of carbon tax into commodities that they will have negative responses to this circumstance. Therefore, in order to solve this arising problem, Gilbert Metcalf recommended that “to make a carbon tax more progressive, and remedy mom of the labor market distortions caused by the current tax code, some of the revenue could be rebated to households in the form of an earned income tax credit to offset the payroll tax” (Houses 2012).
In relatively, carbon tax affects to other sectors such as employees, businesses and manufactures. Firstly, the burden tax will occur in small businesses and employees that they suffer significantly from other increasing cost. According to the research reveals, supermarkets and other business that hire a large number of casual employees, are beginning to resign their employees or reduce their working our per week (Daily Telegraph, 2012). Moreover, the small businesses generally gain low profit from their business and share an additional expense with the customer.
With imposing the carbon tax, they are restricted to get more profit from their business by spending more on the tax and customers at the same time will be paid more because of the rise of cost of goods. Furthermore, it is extremely disadvantage for people who have been running their own business because the labor government has decided to support them less than before by decreasing 18 percentage to only 7 percentage at he same time from the federal election 201 0 in Australia (Daily Telegraph, 2012). Employees and customers have been affected significantly by the implement of carbon tax.
They have to face to the problems of losing their jobs because the businesses want to reduce their Cost while they are spending money on burden tax. In addition, the increasing cost from carbon tax would also affect to customers and employees who have to pay more for their living expenses such as bill, electricity, food and transportation. Similarly, poorer people and unemployment will occur a lot by imposing tax. It will result in supporting and applying more solutions for unemployment people and the government has to spend more money for this circumstance.
This could be crucial problem for government whether to apply or find the better solution for the number majority people in Australia. Along with carbon tax, there is also another policy instrument to mitigate the carbon emissions such as cap-and-trade. Cap and trade is defined as a market scheme that has been using to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. Additionally, the government has been set up the permit or cap on the amount of a pollutant that may be emitted, these permits could be sold at auction, or administratively allocated.
Each emissions permit could be equally to one tone of carbon dioxide equivalent. At the end of each year, each organization has to be responsible to return the permits, which are equaled with the amount of pollutants, those have been release to the environment In that year. There are some strengths and weaknesses of these two approaches. The strength of the cap-and-trade method, which is designed the bevel of desired environmental outcome and allow the individual firms to flexibly choose the way to achieve their emission targets, for instance, by 2050, the emissions would reduce to of 1990.
Nevertheless, the carbon tax could not guarantee the achievement of a particular emission target because the quantity of emission would fluctuate due to the increase or decrease of the demand of energy and the carbon tax is also designed to growth steadily over time. Secondly, while the price of emissions permits under the cap-and-trade program may vary considerTABLE from year to year, carbon tax can fix the price of carbon emissions. Lastly, both of these approaches are used to raise revenue and reduce the other taxes (Reveille, 2009, up. -6). In summary, it is hard to determine which method is more useful than the other or more suiTABLE to implement widely. However, it is believed that the carbon tax is more viTABLE than cap-and-trade approach in long run (Matthews, 201 2) Those studies were only TABLE to discuss the advantages and disadvantages of carbon tax in order to reduce the carbon emissions and mitigate the climate change and explain how carbon tax is adjusted and implemented in practical. They also pointed out another mission trading solution, which is cap and trade.
