Carbon pricing

Question 1

What countries have implemented carbon pricing?

Answer 1

Question 2

Term: Carbon tax

Answer 2

Term: Carbon tax
Definition: A tax imposed on the carbon emissions of individuals and firms.
Details:

• It aims to internalize the external costs associated with greenhouse gas emissions.
• It makes emitting carbon more costly, encouraging emission reductions.
  It is considered cost-effective as it targets the source of emissions directly.
• The tax should increase every year to drive greater emission reductions over time.
• A carbon border adjustment system is needed to prevent carbon leakage and protect domestic industries.
• The revenues generated from carbon tax can be used for various purposes such as investing in clean energy or providing rebates to citizens.

Question 3

Term: Cap-and-trade system

Answer 3

Term: Cap-and-trade system
Definition: A market-based approach to limiting carbon emissions by setting a cap on total emissions and allowing trading of emissions permits.
Details:

• The government determines the total emissions quantity (cap) and allocates permits to polluting entities.
• Permits can be bought, sold, or traded in a market.
• Low-cost firms can reduce emissions and sell surplus permits, while high-cost firms can purchase permits to meet their emission allowances.
• Cap-and-trade creates a market for pollution permits and encourages emission reductions in the most cost-effective manner.

Question 4

Term: Fossil fuel subsidies

Answer 4

Term: Fossil fuel subsidies
Definition: Financial incentives or support provided by governments to the fossil fuel industry.
Details:

• Fossil fuel subsidies make carbon emissions cheaper and counteract efforts to reduce emissions.
• They contribute to environmental harm and are inconsistent with climate change mitigation goals.
• Eliminating fossil fuel subsidies would enhance energy security, reduce emissions, and yield economic benefits.

Question 5

Term: Environmental bias in international trade

Answer 5

Term: Environmental bias in international trade
Definition: Differential treatment of industries in international trade, where industries with higher carbon emissions receive lower import tariffs or non-tariff barriers.
Details:

• This bias leads to implicit subsidies for CO2 emissions in internationally traded goods.
• It contributes to climate change and undermines efforts to reduce global emissions.
• Removing the bias could result in a significant reduction in global CO2 emissions without substantial economic impact.

Question 6

Here is a simple example of progressive tax. Make sure you understand the table.

Answer 6

Here is a simple example of progressive tax. Make sure you understand the table.

Question 7

Here is an example of a carbon tax system based on carbon footprint. Is it regressive or progressive? Why?

Answer 7

Regressive. Even though high income citizens pay more carbon tax than low income citizens, the proportion of their disposable income they pay in carbon tax is smaller.

Question 8

The picture shows a carbon tax system where carbon tax revenues are paid back to citizens as a tax rebate. Why would high income citizens vote no and the rest yes?

Answer 8

Because high income citizens would pay a higher tax than they already do with just the income tax.

British Columbia example

Question 9

The picture shows a carbon tax system where carbon tax revenues are used to lower income tax. Why would high income citizens vote for and the others against?

Answer 9

The French example

Question 10

What are cons linked to carbon tax?

Answer 10

Cons of Carbon tax:

• Initial resistance: There may be opposition to introducing new taxes, which could impede the political feasibility of implementing a carbon tax.
• Potential regressive impact: Carbon taxes can have a disproportionate impact on low-income households if not accompanied by measures to address equity concerns.
• Difficulty in setting the right tax level: Determining the optimal tax rate that reflects the social cost of carbon and balances economic impacts can be challenging.
• Incomplete coverage: The effectiveness of a carbon tax relies on widespread adoption, and if only implemented in some regions, it may lead to carbon leakage or relocation of emissions.