Carbon Taxes

Question 1

3 advantages of carbon tax

Answer 1

• Extra tax revenue; can be used to fund schemes that decrease CO2 emissions
• Makes polluter pay for their damage
• If the carbon tax is set sufficiently high, this creates strong incentives for clean energy investment to lower CO2 emissions

Question 2

5 disadvantages of carbon tax

Answer 2

• increases costs of production ; business profits diminish and has a potential to harm jobs
• difficult to measure CO2 emissions; this makes it tough for governments to set the right level for the Carbon tax
• Regressive nature of taxes; there will be greater impacts on low-income households
• Businesses may leave to country; to move to a country with low Carbon taxes or none at all hence, global emissions do not change
• If PED is low, there may be a need for a very high Carbon tax; governments incur opportunity costs