Advocates say it’s the best way to address climate change, but the notion has a history of being politically dicey.
Burning fossil fuels is relatively cheap—until you factor in respiratory disease, floods, lower farm output, and many other effects from the resulting greenhouse gases.
That's why advocates say putting a price on how much carbon dioxide goes into the air is key to climate change action.
“It’s hard to imagine reducing emissions enough to limit dangerous climate change without carbon pricing,” says Helen Mountford, program director for the climate initiative New Climate Economy. She calls the idea a “vital piece of the puzzle.”
Worldwide, making it most costly to pollute could help governments achieve the climate goals they agreed to pursue at landmark talks last year in Paris. Yet the words “carbon tax,” or the related “cap and trade,” can be politically charged.
Still, the notion of putting a price on planet-warming carbon has gained traction over the past three decades, as this map from sustainability advocacy group Sightline Institute demonstrates. Currently, about 40 countries—including Sweden, Mexico, Japan, and Norway—and more than 20 localities have some kind of carbon pricing scheme, according to the World Bank.
Places Where it Already Works
In Denmark, which has had a carbon tax since 1992, emissions per person went down 15 percent between 1990 and 2005, according a report from the U.S. National Renewable Energy Lab, while Sweden’s government estimates that its emissions by 2000 would have been higher by at least 20 percent had it not implemented a tax in 1991. Overall, Sweden’s carbon emissions went down by a fifth between 1990 and 2012, while Denmark’s fell almost 25 percent.
On the other hand, Norway actually saw emissions go up after its carbon tax was enacted in 1991, as its oil- and gas-driven economy grew. “Oil and gas production has been the main cause of the increase in Norway’s carbon dioxide emissions,” says the Norwegian Environment Agency, even as it calls the carbon tax its “main instrument in environmental policy.”
And Australia, one of the biggest emitters per capita, repealed its carbon tax in 2014, citing a desire to “lower costs for Australian businesses and ease cost of living pressures for households.”
But the concept has support in seemingly unlikely corners. In 2015, six European oil and gas companies called for governments to set a carbon price as part of international climate negotiations, saying it would provide a “clear roadmap for future investment.”
How Do You Price Carbon?
What exactly should that price be? There's the tricky part: Existing prices around the world range from $2 to $168 per metric ton emitted.
Mountford says her group’s research indicates that a price of $75 per ton in developed countries and $35 per ton elsewhere could cut emissions as much as 5.6 metric gigatons, or about a fifth of the way to bridging the emissions gap between where we are now and where we need to be to keep warming in check.
A carbon price can take shape in different ways. A tax like Obama’s $10-per-oil-barrel proposal can provide certainty about costs for businesses; an emissions trading system, or cap-and-trade, on the other hand, sets a limit on the overall greenhouse gas amounts and lets polluters trade credits to stay under the ceiling. Either concept can be effective, says environmental research group World Resources Institute: “Critics focus on certain disadvantages of carbon taxes or cap-and-trade, but their arguments are unpersuasive if policies are well designed.”
Opponents of a price on carbon argue that it will hike people’s bills. Of course, the point is to make fossil fuels more expensive, and therefore less appealing, for everyone to use—it’s the same strategy that has long been used with cigarettes and alcohol by a number of countries. So, it’s an idea many of us can get behind in theory, but it sometimes sours when you’re actually facing higher prices at the pump.
But there are ways to reduce the sting for consumers. One would be to return the money via tax cuts or rebates elsewhere. Under that scenario, a carbon price can gain favor. A report published in 2014 found that U.S. public support for a carbon price was only 38 percent if the money went toward reducing the federal deficit. But if it went toward a rebate check in the mail? Then 56 percent of people like the idea.