Carbon pricing Flashcards
What countries have implemented carbon pricing?
Term: Carbon tax
Term: Carbon tax
Definition: A tax imposed on the carbon emissions of individuals and firms.
Details:
- It aims to internalize the external costs associated with greenhouse gas emissions.
- It makes emitting carbon more costly, encouraging emission reductions.
It is considered cost-effective as it targets the source of emissions directly. - The tax should increase every year to drive greater emission reductions over time.
- A carbon border adjustment system is needed to prevent carbon leakage and protect domestic industries.
- The revenues generated from carbon tax can be used for various purposes such as investing in clean energy or providing rebates to citizens.
Term: Cap-and-trade system
Term: Cap-and-trade system
Definition: A market-based approach to limiting carbon emissions by setting a cap on total emissions and allowing trading of emissions permits.
Details:
- The government determines the total emissions quantity (cap) and allocates permits to polluting entities.
- Permits can be bought, sold, or traded in a market.
- Low-cost firms can reduce emissions and sell surplus permits, while high-cost firms can purchase permits to meet their emission allowances.
- Cap-and-trade creates a market for pollution permits and encourages emission reductions in the most cost-effective manner.
Term: Fossil fuel subsidies
Term: Fossil fuel subsidies
Definition: Financial incentives or support provided by governments to the fossil fuel industry.
Details:
- Fossil fuel subsidies make carbon emissions cheaper and counteract efforts to reduce emissions.
- They contribute to environmental harm and are inconsistent with climate change mitigation goals.
- Eliminating fossil fuel subsidies would enhance energy security, reduce emissions, and yield economic benefits.
Term: Environmental bias in international trade
Term: Environmental bias in international trade
Definition: Differential treatment of industries in international trade, where industries with higher carbon emissions receive lower import tariffs or non-tariff barriers.
Details:
- This bias leads to implicit subsidies for CO2 emissions in internationally traded goods.
- It contributes to climate change and undermines efforts to reduce global emissions.
- Removing the bias could result in a significant reduction in global CO2 emissions without substantial economic impact.
Here is a simple example of progressive tax. Make sure you understand the table.
Here is a simple example of progressive tax. Make sure you understand the table.
Here is an example of a carbon tax system based on carbon footprint. Is it regressive or progressive? Why?
Regressive. Even though high income citizens pay more carbon tax than low income citizens, the proportion of their disposable income they pay in carbon tax is smaller.
The picture shows a carbon tax system where carbon tax revenues are paid back to citizens as a tax rebate. Why would high income citizens vote no and the rest yes?
Because high income citizens would pay a higher tax than they already do with just the income tax.
British Columbia example
The picture shows a carbon tax system where carbon tax revenues are used to lower income tax. Why would high income citizens vote for and the others against?
The French example
What are cons linked to carbon tax?
Cons of Carbon tax:
- Initial resistance: There may be opposition to introducing new taxes, which could impede the political feasibility of implementing a carbon tax.
- Potential regressive impact: Carbon taxes can have a disproportionate impact on low-income households if not accompanied by measures to address equity concerns.
- Difficulty in setting the right tax level: Determining the optimal tax rate that reflects the social cost of carbon and balances economic impacts can be challenging.
- Incomplete coverage: The effectiveness of a carbon tax relies on widespread adoption, and if only implemented in some regions, it may lead to carbon leakage or relocation of emissions.