The need for a revenue-neutral carbon tax

I believe the rationale for a carbon tax is simple and obvious. The levels of CO2 already in the Earth’s atmosphere and being added daily are destabilizing established climate patterns and threatening the ecosystems on which we and other living beings depend. The debates are all very well known at this stage, and I wont bore any of you by repeating them here. Suffice it to say that I firmly believe a carbon tax is a good thing and any reduction in carbon emissions are essential to avoid runaway climate change and avert resulting severe weather events, inundation of coastal areas, spread of diseases, failure of agriculture and water supply, infrastructure destruction, forced migrations, political upheavals and international conflict.

A carbon tax must be the central mechanism for reducing carbon emissions. A tax on carbon should hopefully provide additional incentives to develop and deploy carbon-reducing measures such as energy efficiency, renewable energy , low-carbon fuels, and conservation-based behavior such as bicycling, recycling and overall mindfulness toward energy consumption. Taxing fuels according to their carbon content will infuse these incentives at every link in the chain of decision and action — from individuals’ choices and uses of vehicles, appliances, and housing, to businesses’ choices of new product design, capital investment and facilities location, and governments’ choices in regulatory policy, land use and taxation.

However a carbon tax should also be revenue neutral. In effect this means that little if any of the tax revenues raised by taxing carbon emissions would be retained by government. The vast majority of the revenues would be returned to the public, with, perhaps, a very small amount utilised to mitigate the otherwise negative impacts of carbon taxes on low-income energy users.