Carbon Tax - The way to achieve net-zero emissions or just a gimmick?


The carbon tax was proposed by David Gordon Wilson in 1973. He was a professor at MIT, United States. Fifty years later, 27 countries have instituted carbon tax while the United States is yet to implement it.

In these 50 years, the U.S. alone has emitted around 250 billion of carbon emissions with per capita emissions of 15.24 metric tons.

In today's article, let's look at what is a carbon tax and certain arguments related to it.

Carbon Tax

A carbon tax is levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events.

The six arguments

A podcast by Deborah Lucas of MIT Sloan and Jeff Meli of Barclays discussed certain arguments which are listed below.

Carbon taxes minimize the total cost to society of emission reductions.
GHGs are not only harmful to the person or organizations emitting them but also to society. Sustainable development goals (SDGs) deals with climate change – for which countries adopted the Paris Agreement to limit global temperature rise to well below 2 degrees Celsius. However, to achieve this, organizations must keep their carbon emission in check, for which the only foreseeable solution which can be measurable is a carbon tax. Those engaged in activities that can cheaply move away from using carbon will do so, and those who cannot do that will pay the tax.

Carbon taxes are transparent.
As a responsible investor, carbon taxes enable you to determine how much revenue is generated and how much the company emits carbon to bring in those revenues. Given the rise of ESG recently, carbon taxes paid by companies can especially be helpful for ESG rating providers, policymakers, investors, and even the companies themselves.

Carbon taxes are enforceable.
If you have been following the news recently, there has been an increasing number of companies coming out and stating pledging to achieve net-zero emission by XX year. All this is good to hear, but without a carbon tax, the progress tracking for investors betting their money on such statements will be difficult.

Carbon taxes produce explicit revenues.
This is a subtle one. Carbon taxes generate a new revenue stream for policymakers because no company is or can go net-zero overnight. How can this money be used? – that’s up to policymakers. However, one possible solution given in the podcast is - The tax could be used to subsidize lower-income people who might have trouble paying energy costs.
Carbon taxes are adjustable.
The current regulatory taxes cannot be raised immediately because the authorities need funds, right? But carbon tax can be adjusted in a short span as new information comes in. E.g., if the emission needs to be reduced at a greater pace, the tax could be raised accordingly.

Carbon taxes reduce uncertainty.
Carbon taxes are much more efficient because it is directly related to emissions by the organizations without any tangles. They can act as a roadmap for companies looking to go net-zero emitter. Moreover, it is better to have a carbon tax in place now when it is not too late than to make policies that are rigid, demanding, and less predictable.


The U.S. is one of the world’s biggest carbon emitters but is yet to have a carbon tax in place, which is extremely dangerous as time is ticking at poles.
The world needs to act and act fast because – Sometimes, LATER Becomes NEVER.

Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.

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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.


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