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A carbon Tax is essentially a pollution tax; it is a fee on the production and use of fossil fuels, based on the amount of carbon their combustion discharges. The government will determine a price per ton of carbon and will be administered through electricity, natural gas and oil. The idea behind this is that due to the increasing prices of “dirty fuels”, it will encourage businesses, and individuals to be more energy conscious. Therefore, reducing consumption and increasing energy efficiency--switching to clean energy (solar, wind, hydro, etc). This would, theoretically, result in lower greenhouse-gas emissions. The taxes raised can be used to subsidize environmental programs or be issued as a rebate. Economists like Carbon tax because it is stable and predictable, meaning businesses would know the price of carbon and where it was heading. As a result, they could then invest in alternative energy and increased energy efficiency.
One group, the U.S. Inter-agency Working Group on Social Costs of Carbon, did develop an estimate of $40 per metric ton. A tax reflecting this social cost would increase gas prices by 36 cents a gallon. It would add $0.02 to the average price of a kilowatt-hour of electricity. A United Nations report said the price should be much higher in order to keep temperatures from rising above 1.5 C, by 2030. It recommended a carbon tax of between $135 and $5,500 per ton. A recent report from the Organization for Economic Cooperation and Development found that the average carbon price across 42 major economies was around $8 per ton in 2018.
Countries that currently implement carbon tax policy are Canada, Mexico, Columbia, Chile, Argentina, France, Iceland, Ireland, United Kingdom, Spain, Portugal, Switzerland, Slovenia, Norway, Denmark, Sweden, Finland, Estonia, Latvia, Poland, Ukraine, South Africa, and Japan. Most notably is probably Sweden, who has reduced emissions 23% in the past 25 years due to carbon taxing. (https://www.newyorker.com/magazine/2015/08/24/the-weight- of-the-world)
ETS (Emissions Trading System) is another method of carbon pricing. In this system, emitters of carbon are given the ability to trade emission units in order to meet their emission targets. This is done using two different methods: Cap-and-trade and Baseline-and-credit systems. Cap-and-trade systems apply a cap, or absolute limit, on the emissions within the ETS; then, emissions allowances are distributed--usually for free or through auctions--for an amount equivalent to the cap. This is particularly popular within the European Union (EU).
Once again, this system provides a financial incentive for companies to cut back on their emissions because they can both save money on fossil fuels and potentially sell unused, excess, emissions.
Most notably is easily the European Union’s ETS. Set up in 2005, the EU’s ETS is the world's first international emissions trading system. It remains the biggest one, accounting for over three-quarters of international carbon trading. The EU’s ETS is broken down into four separate phases, by time intervals. Currently we are in phase 3, which spans from 2013-2020. Phase 4, which spans from 2021-2030, aims to reduce the amount of greenhouse gases by 40%, compared to the 1990 levels.
Here is a factsheet describing the EU ETS in further detail: (https://ec.europa.eu/clima/sites/clima/files/factsheet_ets_en.pdf)
As of November 2018, 46 national and 24 subnational jurisdictions are putting a price on carbon
(*Thumbnail photo: https://www.motherjones.com/environment/2014/08/stop-dreaming-republicans-wont-back-carbon-tax/)