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Glossary of Terms

Carbon Tax
A carbon tax is another proposed policy option for implementing carbon regulation. It can be implemented along with a cap and trade system, or it can stand alone. The goal of a carbon tax is to reduce the human-produced carbon dioxide emissions that lead to climate change. A carbon tax puts a price on a ton of carbon dioxide (CO2), and taxes fossil fuel sources proportionate to the amount of carbon that they emit when being burned. When coal is burned, it emits a lot of carbon and would be taxed accordingly. When natural gas is burned, it emits less carbon and incurs less tax. Any tax-levying entity (federal government, state, cities, etc.) can conceivably implement a carbon tax (most likely at the wholesale level, like a gasoline tax). Carbon taxes raise the cost of fossil fuel energy. An important qualification - a carbon tax should ideally be revenue-neutral, and it should be implemented gradually over time. What revenue-neutral means: A carbon tax is a flat tax, so it affects everyone equally regardless of their income level (like a sales tax). By making the carbon tax revenue-neutral, it will not disproportionately affect less affluent people – those whose budgets cannot afford an increase. To accomplish this, a government would take the tax revenues and return them to the people, either through paying direct rebates or dividends, or by tax-shifting. Tax shifting works by slowly increasing the carbon tax while decreasing other taxes (like federal income tax or state sales tax). A carbon tax has the most impact on wealthier people, because studies show that they use far more energy than poor ones. A carbon tax works to reduce greenhouse gas emissions at their source. By establishing stable prices for carbon, it makes carbon and energy markets less volatile to price fluctuations. A carbon tax applies across society, not just to business and government interests (like a cap and trade system, whose costs will likely be passed on from manufacturers to consumers, as a hidden tax). A carbon tax is also less likely to be manipulated by special interests. Currently, the European Union, Japan, and Boulder, CO have a form of a carbon tax.
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