What is the impact of a global carbon tax?

What is a global carbon tax and how does it work?

When a hydrocarbon fuel, such as coal, is burnt, its carbon is converted to carbon dioxide (CO2) and other equivalents (CO2eq). These are heat-trapping greenhouse gas causing global warming, which damages the environment and human health.  Since greenhouse gas emissions from the combustion of fossil fuels are closely related to the carbon content of the respective fuels, this negative externality can be compensated for by taxing the carbon content of fossil fuels.


A global carbon tax is a tax levied on the carbon content of fuels, generally in the transport and energy sector. Carbon taxes intend to reduce carbon dioxide emissions by increasing the price of fossil fuels and decreasing the demand for them, allowing for the promotion of cleaner renewable energy sources. This can be shown with a simple supply and demand curves.
















A national carbon tax is currently implemented in 25 countries around the world, including various countries in the EU, Canada, Singapore, Japan, Ukraine, and Argentina. Sweden levies the highest carbon tax rate at $132 dollars per ton of carbon emissions.


What is the impact of a global carbon tax?


The type of carbon tax we will use for this example is an escalating price, similar to the Energy Innovation and Carbon Dividend Act of 2019. This is a bill in the United Sates House of Representatives that proposes a free on carbon at the point of extraction to encourage market-driven innovation of clean energy technologies to reduce greenhouse gas emissions. The tax would begin at $15 per metric ton of carbon dioxide equivalent and increasing each year by $10 (adjusted by inflation).

Below we have put these measures into the En-ROADS simulator, built by Climate Interactive and MIT, to show the effect various different indicators such as temperature change.  

From this one policy change, temperature change by 2100 from pre-industrial times is projected to decrease from 3.6 degrees to 2.5 degrees, avoiding the worst of the climate disasters. As shown by the global sources of primary energy, the effect of a carbon tax would decrease consumption of fossil fuels and our energy demand would be now be met with renewables (the substantial green chunk). This shift also promotes changes in the transport sector and methane emissions.


As oil becomes more expensive, consumers demand more electric cars as fuel-powered cars become economically irrational. Furthermore, as the oil and gas industry become less relevant, methane emissions, the main non-co2 greenhouse gas, also decrease.

Economists have been arguing that a carbon tax would be the quickest and most effective route in reducing carbon emissions. However, equality issues must be considered as a carbon tax in the short term would likely raise the cost of energy to all consumers. The emergence of cheap solar and wind power, which can be created and produced all around the world, could facilitate the developing world leaping frogging old energy tech to new clean tech, thus making a carbon tax more viable than ever.

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