Carbon Taxation for Climate Change Mitigation

The “public bad” that is carbon pollution must be taxed and otherwise regulated into discontinuation since other steps have not yet solved climate change and may not. This article demonstrates that with the right amount of voter support, which exists, carbon taxation can be implemented in a progressive manner that ends up with the significant side benefit of alleviating poverty at the national or global levels. Thus, a “universal basic income” can be created through revenue recycling either within each jurisdiction or, with more buy-in than what is currently likely to be the case, at the global level at a later point in time.

To be effective, a carbon tax would have to start imminently and potentially at levels between $75-100 per metric ton of CO2 emissions. This would correspond to about $1 per gallon of gas, which seems impossibly high for voter and lawmaker buy-in. The internationalization of carbon costs currently lies at around $2 per ton. But in September 2021, a record 59% of Americans now say that they either “alarmed” or “concerned” about climate change. Only 19% are “doubtful” or “dismissive.” A December 2020 poll also showed that 66% of registered voters support making fossil fuel companies pay a carbon tax. If the right rhetoric is used and compensation is made to low-income earners, carbon taxation is entirely feasible. European and other examples show that the economy can grow while carbon taxes are rising.

Other steps than mere taxation may also be applied in tandem. Thus, existing cap-and-trade systems may become known as a “cap and tax” system.

This article points out how correct carbon pricing can be implemented and how to do so to avoid the political and other minefield that looms.

SSRN