Posted by: Date: April 19, 2010 In: ,

Claim: A carbon tax will reduce pollution

In general, a tax on an action induces people to do less of the action. A “carbon tax” would raise the price of consuming goods like fossil fuels that cause carbon dioxide emissions, thus giving incentive to consume less of these. No one likes higher prices. But we as a society pay the cost of polluting emissions in other ways. Using less fossil fuel, for example, would not only reduce carbon dioxide emissions implicated in global climate change, but also those of several other pollutants that affect human health. A carbon tax would make those who cause the emissions from their consumption pay something for it directly and, in the process, lead to fewer emissions.

For an electorate that hates new taxes, one could offset the carbon tax increase by lowering some other existing tax such as payroll taxes. This way, the bottom line for most households need not change, but the incentive for conservation is preserved. To address equity concerns, one could offset the burden of the carbon tax on the poor by adjusting existing programs that specifically help the poor. As one possibility within the tax system, one could adjust existing income tax credits for low-income groups.

Bottom line: A carbon tax with offsetting tax adjustments elsewhere can be both an efficient and equitable way to lower carbon dioxide emissions.

Priscilla St.Clair

Associate Professor of Economics

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