A Carbon Tax, Explained

Climate change is an alarming issue, and constant reports remind us that there’s no more time to address the impacts of this problem. Economists are now united in their opinion that putting a price on carbon elements is the most efficient and cost-effective means of carbon emissions reduction. If you care both for the environment and the economy, then carbon pricing presents the best solution to curb greenhouse gases.
The main cause of global warming is greenhouse gas emissions, intensifying the crisis and its health effects, damage to infrastructure, and disrupting communities. Such effects also bring about significant economic losses. A carbon price puts a price on such costs, asking households, businesses, and industries to use cleaner technologies and demand more energy-efficient products. It would also increase innovation and investment in these kinds of green solutions, such as solar and wind power.

Carbon pricing already exists in Canada and many other countries. What a carbon tax does is try to slow down the emissions, which means shifting the balance towards energy efficiency and renewable energy.

Two elements of Prime Minister Justin Trudeau’s carbon pricing policy are:

1. The Fuel Tax: This tax is charged on different fuels that are bought including combustible wastes such as asphalt shingles and tyres whose impact is to create heat or electricity. In most instances, distributors of fuel pay this tax but the cost is passed down along the distribution path and consumers are indirectly impacted while filling gas in their car, paying bills for household energy, or buying goods.

2. Pricing System: This area is concerned with sectors undertaking high levels of carbon emissions, such as oil producers, chemical manufacturers, automotive producers, and coal or gas power stations. These companies are exempt from paying the carbon price on fuel but are charged based on the actual emissions they produce. The percentage of emissions to be paid under this charge varies from industry to industry, depending upon how hard one has to fight foreign players in the competition, and some sectors pay on a lesser percentage in order not to lose its competitive edge.

Another useful way to understand what a carbon tax is is to think about the sort of road toll that makes traffic on a street unsustainable, because a toll encourages drivers to seek some other route or mode of transportation altogether. Similarly, carbon pricing gives society choices about whether to cut energy consumption in general, or just to switch over to cleaner alternatives.

The carbon tax gradually raises the price of gasoline, diesel, and coal over time, giving people and business a chance to adjust. Revenue generated is reinvested into green technologies or can be used to provide tax relief. In Canada, most households financially benefit as a result of carbon tax relief issued by the federal government through rebates.

Do incentives like this work? Absolutely. People react to price changes.

Across Canada, most households receive rebates that offset the cost of the carbon levy, and the higher cost of burning fossil fuel-emitting, is passed on to in the form of a carbon-levy charged at the pump. By making it more expensive to burn fossil fuels, emitting greenhouse gases, carbon pricing induces people and businesses to use less. The price starts low but increases over time, giving consumers time to change their behaviours. As a result, nonpolluting sources of energy become cheaper, less fossil fuel is used, and pollution declines.
The Canadian Government pays back around 90 percent of what is collected via the “Canada Carbon Rebate” program. Each family receives its share four times a year. The amount is computed based on the number in the family. Around 80 percent of households receive more than they pay for carbon levied.
Economists have long agreed that in terms of reducing carbon pollution, the most effective solution is through carbon pricing. It assists in balancing climate change against protection of the economy by gradually changing behaviours and supporting cleaner energy. Not only this, it’s good for economy, environment and for our future generations.