Carbon emissions trading currently underway in many parts of the world including Europe is suggested to be the solution for providing incentives to corporations to reduce their emissions. Lately, I have been thinking about how a Carbon Tax would be a good medium-term solution to decreasing carbon emissions. Economists in generally prefer a cap-and-trade system than a tax. However, tax in this scenario could be more beneficial.
The AFR article makes some important points. It says that a emission system can take many years to start and even then it mostly effects the ‘stationary energy’ sector. However, a carbon tax can be implemented now on a wide variety of goods and services and can create a better incentive in the short to medium term.
Shapiro’s report suggests that since taxes distort the relative prices of goods (which is the main reason why economists do not like it) it is better to “make the base of the tax as broad as possible, so its rate can be low and most people and activities are affected equally”.
Joshua Rosenau writes on his blog that the Wall Street Journal polled 60 economists and a majority backed a carbon tax as “a tax would raise the price of fossil fuels and make alternatives, which today often are more costly to produce, more competitive in the consumer marke”
Politically another tax would be tough to implement considering that it can have a direct effect in the price of some good and services, however, there is merit in exploring the implementation of a carbon tax.