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Putting a Price on Carbon is Not Really a Tax

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Here’s something that just drives me crazy. The opponents of establishing a price on carbon portray it as just another mechanism to tax the American people and use the resulting revenue to expand Big Government. The real situation is that the price of carbon today, particularly in fuels, doesn’t reflect its true economic cost. We currently pay only for extracting it as coal or petroleum and converting it into a fuel. Once burned, carbon gets a free ride. There is no mechanism for pricing the impact on the environment and the economic impacts of climate change in particular.

In general, taxes are primarily revenue-generating mechanisms used to fund the varied costs of operating governments and the social programs the society demands. If correctly positioned, the money raised by a carbon tax could be used to fund mechanisms that reduce the overall environmental impact of energy usage, such as promoting CO2 capture mechanisms and providing credits to non-CO2 generating energy sources like solar, wind, and geothermal. Additionally, a portion of this revenue could be used to provide a tax credit for low-income families, offsetting their higher fuel costs and helping those that the carbon tax opponents claim to be protecting. The tax could be, in many ways, revenue neutral.

There are currently a series of political ads running on television. They feature “average” citizens proclaiming their opposition to any new energy tax. One argument is that now is not the time due to the poor economy. That’s a good point. Perhaps the price could be phased in over time to allow for economic recovery in addition to producing low-income credits.

But the argument that really pressed my buttons was an individual saying that a carbon tax “would affect everything we do, how we drive, heat our homes, etc.” Of course, that’s the point. We’ll never address the long-term issues associated with carbon use and climate change unless people pay the full cost of that carbon-based energy. The full cost will help people make better economic—and environmental—choices. 

Posted In: Policy

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