As mankind becomes more aware of the impact fossil fuel consumption has on our environment, and the environment we leave behind for future generations, questions about how to control consumption arise.
Carbon exists in every fuel burned; coal, natural gas and petroleum, and is released into the atmosphere as carbon dioxide. Non combusting energy sources, such as wind, nuclear power, hydropower and solar energy, do not produce carbon dioxide.
The idea behind a carbon tax is to help reduce the consumption of CO2 producing fuels by levying a tax on them. The carbon tax is one of two ideas being put forth to help reduce our carbon emissions. The second idea is the cap-and-trade plan.
The idea of a carbon tax has not been the favourite among the politicians. Many countries that rely heavily on the cheaper, yet high carbon dioxide emitting fuels, for energy are opposed to the tax. Economists, and a good section of the consumer public, feel that the carbon tax could be a fair and effective way of controlling and limiting CO2 emissions.
Of the three fuels to be taxed, petroleum, coal and natural gas, coal has the highest carbon emission, followed by petroleum, and lastly, by natural gas. The tax would be levied according to the carbon emission, so the tax would be highest on coal. Governments would have a set rate per ton on carbon, and this would be figured into a tax based on the type and amount of fuel consumed. With the added price of the tax tacked on to these fuels, the pricing for alternative fuels becomes more competitive.
The concept of negative externalities is another important issue this tax addresses. The CO2 emissions we are releasing into our atmosphere each day are a cost to humanity that is going unpaid. But, the reality is that we are all going to be paying for it, and our children will be paying for it. When the societal costs of fossil fuel are factored in, it is easy to see that the price of these fuels is truly greater than what we are paying. By applying a tax to the consumption of these fuels, we each become accountable for our consumption, and help pay this debt to our environment.
The carbon tax is simple and fair, as the tax is levied according to consumption. It is not designed to be a tax that the lower income groups more heavily. Households and businesses with a bigger consumption rate will feel the tax more than households and businesses that consume less. Still, the tax will raise the price of fuel, which will translate into prices raised on most products to compensate for raised finance, production and transportation costs.