The Case for a Carbon Tax

By NYT Editorial Board for The New York Times

In a welcome development, businesses are asking world leaders to do more to address climate change. This week, the top executives of six large European oil and gas companies called for a tax on carbon emissions.

These companies — the BG Group, BP, Eni, Royal Dutch Shell, Statoil and Total — are not taking a bold environmental stand. They are being pragmatic. They want an efficient and predictable policy to limit greenhouse gas emissions because they realize something must be done. Numerous scientistseconomists, environmentalists and political leaders have previously proposed similar ideas.

A carbon tax would raise the price of fossil fuels, with more taxes collected on fuels that generate more emissions, like coal. This tax would reduce demand for high-carbon emission fuels and increase demand for lower-emisson fuels like natural gas. Renewable sources like solar, wind, nuclear and hydroelectric would face lower taxes or no taxes. To be effective, the tax should also be applied to imported goods from countries that do not assess a similar levy on the use of fossil fuels.

Many countries already have some version of carbon taxes. In the United States, for example, federal and state taxes on gasoline and diesel, which are used to pay for road and transit projects, are effectively carbon taxes. But at the federal level, those taxes have not been increased since 1993, which has eroded their effectiveness.

Revenue generated by carbon taxes could be used for a variety of purposes. A lot of the money should surely be given to households, especially the poorest, through tax credits or direct payments to offset the higher prices they would have to pay for gasoline, electricity and other goods and services because of the tax. Some of the money could be used to invest in renewable energy and public transportation, or to lower other taxes.

British Columbia started phasing in a carbon tax in 2008 and used the revenue to reduce income taxes. The province’s fossil fuel use fell after the tax was put in place, even as fuel consumption increased in the rest of Canada, and the economy of British Columbia has grown faster than that of the rest of the country. The tax is currently capped at 30 Canadian dollars per ton of carbon, or about 24 cents per gallon of gasoline.

A carbon tax would also be much easier to administer than some of the other climate change policies that many leaders, including President Obama and Gov. Jerry Brown of California, have backed. One of those policies is cap-and-trade, an approach that limits overall emissions and allows businesses to buy and sell permits that entitle them to emit carbon dioxide and other greenhouse gases. The United States used cap-and-tradesuccessfully in the 1990s to reduce the pollution that causes acid rain. But a European Union trading system for greenhouse gas emissions has not been as effective.

Even energy companies like Exxon Mobil that did not sign the letter havepreviously said they can support a carbon tax if lawmakers cut other taxes by an equal amount. In addition, oil companies in Alberta, the home of Canada’s tar sands, have endorsed a carbon tax. Exxon Mobil and other large energy companies potentially stand to benefit from a carbon tax, because a tax on emissions would force many electric utilities to use more natural gas, which those businesses produce.

Of course, getting lawmakers to adopt a carbon tax will be difficult. In the United States, many Republican lawmakers, the coal-mining industry and politically powerful corporations like Koch Industries oppose it. Just last year, Australia repealed its carbon tax after a new conservative government came to power.

But world leaders, who will meet in Paris later this year to negotiate a climate change agreement, cannot give up in the face of this opposition. Carbon taxes are one of the best policies available to solve this global problem.