Carbon tax

Subject: Environment

Context:

With China, the largest carbon dioxide emitter, announcing that it would balance out its carbon emissions with measures to offset them before 2060, the spotlight is now on the U.S. and India, countries that rank second and third in emissions.

Concept:

• Under a carbon tax, the government sets a price that emitters must pay for each ton of greenhouse gas emissions they emit.
• Businesses and consumers will take steps, such as switching fuels or adopting new technologies, to reduce their emissions to avoid paying the tax.
• A carbon tax differs from a cap-and-trade program in that it provides a higher level of certainty about cost, but not about the level of emission reduction to be achieved (cap and trade does the inverse).
• Taxes on greenhouse gases come in two broad forms: an emissions tax, which is based on the quantity an entity produces; and a tax on goods or services that are generally greenhouse gas-intensive, such as a carbon tax on gasoline.