Carbon tax, also known as carbon pricing, is a type of Pigouvian tax created to reduce greenhouse gasses (GHG) emissions by pricing them while allowing firms to decide the number of GHG pollutions emitted (Metcalf, 2019). The tax was implemented based on the Paris Agreement which calls to hold the increase of global average temperature to below 2.0C and pursue the effort of limiting the increase to 1.5C (UN, 2015). However, IPCC (2018) reported that human activity caused approximately 1.0C of warming above pre-industrial level and would likely reach 1.5C between 2030 and 2052. This would drive severe impacts such as droughts, wildfires, heat waves, and floods.

The tax implementation has shown its effectiveness as countries reported the decline of GHG emission after implementing carbon pricing. British Columbia (BC), for example, has applied the carbon tax on several fossil fuels since 2008 which were designed to be revenue-neutral, meaning that every profit from the tax would be returned to taxpayers as tax credits and rebates. This protects citizens and small businesses from burden of the tax. Hence, BC successfully arranged a regression-free tax policy while showing a 5-8% decline in their emission outcome effectively after the tax were implemented (Metcalf, 2019). Another example is Sweden, as it imposed carbon tax since 1991 at £23/ton which gradually increased to £110/ton as of 2020. The government’s report showed that emission in Sweden has reduced by 26% between 1990 and 2017 while raising the GDP by 75% (Swedish Ministry of Finance, 2020).

On the other side, carbon tax might not be efficiently tackling the real issue. Food and Water Watch (2016) concluded that the BC carbon tax program has failed to give a long-term benefit on reducing GHG emission. Their report shows that after a brief decline in 2008 and 2009, emission continued to rise by 2.2% between 2009 and 2014. Another challenge is the lack of efficiency. Climate policy should invoke individuals switching into renewable resources. Yet, research has shown that the tax only has minor impact to drive investment in renewable resources (Eskeland et al. as cited in Patt and Lilliestam, 2020)

The failure shows that human cannot solely rely on carbon tax to combat climate change when the priority has shifted into net-zero emission. Food and Water Watch (2017) proposed that countries should start investing in renewable energy and target the use of 100% renewable resources by 2035. Iceland is also proving that this is not impossible as 85% of its total primary energy needs are covered by domestic renewable resources (Government of Iceland | Energy, n.d.). By doing this, World Economic Forum (2017) projected the decrease of global energy demand by 12.65%.

Reconsidering the aforementioned statements, carbon tax would not be an effective solution as it does not possess long-term impact. Thus, without encouraging people to use renewable resources, carbon tax would bring close-to-zero efficiency. If countries invest into clean energy immediately, it is possible for the global temperature to stay below 1.5C.

Reference:

Food and Water Watch, 2016. The British Columbia Carbon Tax. [online] Available at: <https://www.foodandwaterwatch.org/sites/default/files/rpt_1609_carbontax_web17011.pdf> 

Food and Water Watch, 2017. Stopping Climate Chaos. 100 Percent Renewable Energy By 2035. [online] Available at: <https://www.foodandwaterwatch.org/sites/default/files/fs_1708_climate-chaos-web.pdf> 

Government.is. n.d. Government Of Iceland | Energy. [online] Available at: <https://www.government.is/topics/business-and-industry/energy/> 

  IPCC, 2018. Global Warming Of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty. [online] Intergovernmental Panel on Climate Change. Available at: <https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf> 

  McKenna, J., 2017. Most Of The World’S Countries Could Run On 100% Renewable Energy By 2050, Says Study. [online] World Economic Forum. Available at: <https://www.weforum.org/agenda/2017/09/countries-100-renewable-energy-by-2050/> 

  Metcalf, G., 2019. On the Economics of a Carbon Tax for the United States. BPEA Conference Draft, [online] Available at: <https://www.brookings.edu/wp-content/uploads/2019/03/Metcalf_web.pdf> 

  Patt, A. and Lilliestam, J., 2020. Carbon Taxes Aren’T Working Any More. Only Ramping Up Policies And Infrastructure Can Accelerate The Transition - Energy Post. [online] Energy Post. Available at: <https://energypost.eu/carbon-taxes-arent-working-any-more-only-ramping-up-policies-and-infrastructure-can-accelerate-the-transition/>

  Swedish Ministry of Finance, 2020. Carbon Taxation In Sweden. Government Offices of Sweden, p.14.

  United Nations, 2015. Paris Agreement. Paris: United Nations, p.5.