Carbon tax: An outrageous climate change policy?

Abstract

'Touch it and die' is the Canadian experience with carbon tax legislation shared by European and recently Australian politicians. Global community lacks coordinated policy responses to address climate change. Most advanced economies however favour a national climate change policy justified in terms of market failures; that is, greenhouse gases are emitted unchecked because they are unpriced and therefore excluded from official cost calculations. Carbon tax is a policy instrument being used to create a price on carbon by legislative means. It is introduced by government to change the incentive structure of firms by raising the relative costs of fossil fuels consumption and hence carbon pollution. The economic calculations supporting the concept do not account for political realities. Taxes are unpopular; introducing carbon taxes requires a determined and capable government unswayed by business interests and public backlash. Disappointingly the practice has been ‘polluter gets paid’ rather than ‘polluter pays’. Long-term environmental benefits of any climate change policy are intangible, unknown or even unknowable to us. Beneficiaries are unborn generations unable to negotiate now. Price determination is then inevitably speculative. Actual practices in many countries fall well short of the ideal case described in economics textbooks.