Considered a major contributor to global warming, carbon dioxide is viewed by most scientists and economists as a negative externality. Defined as a production or consumption activity that imposes costs on others and/or the environment, negative externalities are often unaccounted for during market transactions and are seldom reflected in the pricing structure of end-products or services. Legislation of a carbon tax is an attempt to account for the negative externalities associated with carbon dioxide, thereby bringing the market back to equilibrium, reducing consumption and mitigating the effects of global warming. Despite these goals and ideals, however, both pros and cons of carbon tax exist. Besides concerns like the higher costs being unsustainable both socially and economically, a carbon tax is an unproven concept to reduce carbon dioxide emissions or mitigate the effects of global warming without creating economic disaster.
There may be some distinct advantages to using a carbon tax to help reduce carbon dioxide emissions. The rapid reduction of emissions and the simplicity of calculation and implementation are two such advantages according to some scientists and economists. The feasibility of a carbon tax rests with the fact that scientists can calculate, with a fair degree of certainty, the amount of carbon dioxide emitted from almost any measurement of carbon dioxide. Implementation is as simple as applying any other tax, by using a structured approach that charges successively higher tax the more carbon dioxide a fuel source produces. Theoretically, people would consume less fuel and businesses would stop relying on heavy emission production processes due to the higher costs, consequently reducing carbon emissions rapidly.
Such taxes will likely spur more research and development of alternative energy sources, while prompting more energy conscious behavior on the part of consumers. Conservation may become more of a norm, with people using bicycles when traveling to work in major cities, while businesses may shift from using coal to another energy source that is either clean or that produces less carbon dioxide. Additionally, a carbon tax may provide new revenue sources for use in the public sector to advance research in clean, renewable energy sources or subsidize environmental programs. Perhaps the most important advantage is that many proponents of a carbon tax feel that prices of carbon under such a system will remain stable and predictable.
When contemplating the pros and cons of carbon tax, there are many arguments against such an approach due to its potential disadvantages as well. One such concern, if not implemented on an international level equally, is that such a tax will likely result in the shift of production to nations without the tax. Another disadvantage is that, when factoring in cost to administer this tax and other external costs, it may prove cost-prohibitive. In order to effectively reduce demand for carbon-based fuels, the tax itself may have to be excessive, hurting the entire economic system because businesses would not be able to produce and consumers would not be able to consume. Turning to the political reality, both business and consumers do not like taxes, making such a tax extremely hard to pass and implement. With this reality, tax evasion may become a problem if such a tax is implemented, or even worse, social discontent and political unrest may increase.