Revenue generated by carbon taxes could be used for a variety of purposes. A lot of the money should surely be given to households, especially the poorest, through tax credits or direct payments to offset the higher prices they would have to pay for gasoline, electricity and other goods and services because of the tax. Some of the money could be used to invest in renewable energy and public transportation, or to lower other taxes.
British Columbia started phasing in a carbon tax in 2008 and used the revenue to reduce income taxes. The province’s fossil fuel use fell after the tax was put in place, even as fuel consumption increased in the rest of Canada, and the economy of British Columbia has grown faster than that of the rest of the country. The tax is currently capped at 30 Canadian dollars per ton of carbon, or about 24 cents per gallon of gasoline.
A carbon tax would also be much easier to administer than some of the other climate change policies that many leaders, including President Obama and Gov. Jerry Brown of California, have backed. One of those policies is cap-and-trade, an approach that limits overall emissions and allows businesses to buy and sell permits that entitle them to emit carbon dioxide and other greenhouse gases. The United States used cap-and-trade successfully in the 1990s to reduce the pollution that causes acid rain. But a European Union trading system for greenhouse gas emissions has not been as effective.
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