An International Carbon Tax to Combat Global Warming: An Economic and Political Analysis of the European Union Proposal

By Herber, Bernard P.; Raga, Jose T. | The American Journal of Economics and Sociology, July 1995 | Go to article overview
Save to active project

An International Carbon Tax to Combat Global Warming: An Economic and Political Analysis of the European Union Proposal


Herber, Bernard P., Raga, Jose T., The American Journal of Economics and Sociology


I

Efficiency and Equity Effects of an International Carbon Tax

Considerable attention has been given during recent years to the possible adoption of an international carbon tax to help deter the perceived threat of global warming.(1) Such a tax is an economic-incentive, a market-based alternative to direct, command-and-control curbs on carbon emissions.(2) A carbon tax comes under the classification of a pigovian(3) tax (Pigou, 1920), that is, a tax designed to internalize negative externalities into the price system. To accomplish this end, the carbon tax places a price upon the nonmarket or social costs of environmental pollution in the form of carbon emissions as generated by the use of the fossil fuels - coal, oil, and natural gas - in the production of energy.(4)

Since fossil fuels do not emit carbon in their natural state prior to mining, a property or wealth tax on the stocks of such fuels would be meaningless. Instead, an efficient carbon tax must be levied upon the negative externalities themselves, the carbon emissions which result from the use of such fuels. Ideally, this would take the form of an excise tax imposed upon each unit of carbon emitted when fossil fuels are used to produce energy for consumption and production activities such as automobile driving and factory operations. Unfortunately, it is not administratively feasible to impose the tax at the actual time of carbon emissions.

However, feasible alternatives are available such as the imposition of an excise tax on fossil fuels either (a) when they are mined or imported into a nation (a primary carbon tax), or (b) when they are sold to businesses and households for use in energy production (a final carbon tax). In order to capture the negative externalities, the tax base should be defined in specific rather than ad valorem terms since it is the physical amount of fuel used to produce energy that is linked to carbon emissions, not the pretax price of the fuel. The destination principle of international trade may be used to help harmonize a carbon tax across nations, thus reducing the risk of trade distortions and free-rider behavior.

The maximum reduction in carbon emissions would be attained from a tax imposed solely upon fossil fuels and not upon alternative sources of energy which do not emit carbon. Energy created from geothermal, nuclear, solar, water, and wind-driven sources does not contribute to global warming and, thus, should not be included in the tax base. In fact, a pure carbon tax levied only upon fossil fuels would encourage the substitution of these noncarbon-emitting energy sources for fossil fuels by making them relatively cheaper than coal, oil, and natural gas. While it is true that a broadbased tax on all energy sources would decrease carbon emissions in accordance with the relevant price elasticities of demand for fossil fuels and the level of the tax rate, it would not maximize carbon abatement since cross-price elasticity effects between fossil and nonfossil fuels would be ignored.

Another feature of an efficiently designed international carbon tax is the requirement that differential marginal tax rates be imposed upon the various fossil fuels since coal, oil, and natural gas emit various amounts of carbon per unit of energy production. Thus, since coal emits 25.1, oil 20.3, and natural gas 14.5 grams of carbon per 1000 British Thermal Units (BTUs) of energy production, the carbon tax rate should be highest on coal, next-highest on oil, and lowest on natural gas in accordance with these carbon intensity ratios. These differential tax rates would encourage the substitution of "cleaner" for "dirtier" fossil fuels while simultaneously encouraging the substitution of nonfossil fuels for fossil fuels if the former are not included in the tax base. In addition, an efficient international carbon tax regime would assure that such differential tax rates be uniform across nations since the atmosphere is a global public good and common property resource that does not recognize the arbitrary nation-state political boundaries imposed by mankind (Herber, 1991).

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

An International Carbon Tax to Combat Global Warming: An Economic and Political Analysis of the European Union Proposal
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?