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Carbon Tax, The Price of Mother Nature

The phrase “untold suffering” is sure to strike fear into the hearts of even the bravest of men. Such a phrase may sound like it came out of a fantasy film or an ancient prophecy, making it all the more devastating to hear the exact same warning from 14000 scientists worldwide.1 In the paper published in the scientific journal Bioscience, thousands of scientists across 153 countries warn the world of impending climate doom if we continue our inaction towards climate change.1


The effects of climate change are no longer subtle, evident from the wildfires and hurricanes that happened this year. Source: AP News


The study was based on 31 indicators that measure the resilience of Earth to the actions of mankind depleting natural resources and raising the greenhouse gas emission rates, such as deforestation rates of the Amazon rainforest, ocean pH and temperature changes, the trend of extreme weather events and the fluctuations in temperatures worldwide. It is disheartening and shocking to note that 18 of the 31 records have reached record levels, and not in a good way. For instance, glacial thickness has reached an all time low, melting 31% faster than it did 15 years ago. On the other hand, greenhouse gas emissions have peaked from 2020 to 2021. It is exceptionally worrying to note that 5 of the world’s hottest recorded temperatures occurred in the past 5 years, with 2020 and 2016 topping the charts as the hottest year for humanity.1 These are not statistics we should be proud of, but rather ashamed about.


Even during the COVID-19 pandemic, where consumption habits and transportation use decreased remarkably, greenhouse gas emissions dropped early in the pandemic before rising back to the pre-pandemic levels.2 Therefore, we can no longer accept the status quo and adopt a nonchalant, laissez-faire attitude towards the impending climate crisis.


Earth has its own natural warming system known as the Natural Greenhouse Effect that keeps Earth warm. However, this effect is intensified with the growing amount of greenhouse gases in the atmosphere, causing global temperatures to rise. Source:Center for Sustainable Systems, University of Michigan


Greenhouse gases play an important role in our atmosphere as they help trap solar energy from the sun, ensuring that Earth remains warm and habitable for life to thrive. In fact, it is estimated that without the greenhouse effect, Earth would have an average temperature of -18°C, which would not support most species.3 However, the ubiquitous use of fossil fuels (coal, oil, natural gas) has led to an enhanced greenhouse effect, where the additional greenhouse gases emitted during the combustion of fossil fuels trap more heat than necessary in our atmosphere, disrupting the natural climate. As long as the world prioritises the economy over the environment, the world will get richer at the expense of our planet’s health. Current predictions estimate that by 2040, the global temperature will rise by 1.5°C.4 While this increase may not seem significant, the repercussions of this temperature rise are more consequential than expected.


NASA expects that once in a decade heatwaves like those experienced in India and Pakistan in 2015 may become annual events. Source:Reuters


NASA data shows that a mere 1.5°C increase in global temperatures could dry up river basins in the Middle East and East Asia, subjecting those who rely on these river basins to water stress, while food shortages may occur due to decreased crop yield from a hotter climate. Meanwhile, extreme weather events are expected to occur more frequently, with cities bearing the brunt of heatwaves as compared to more rural areas due to the urban heat island effect, where structures in the cities such as pavements, buildings and roads absorb and retain heat, intensifying the impact of a heat wave. Furthermore, the greater latent heat in the environment allows the atmosphere to hold more moisture, resulting in stronger and more torrential storms. These are expected to happen more frequently in the high latitudes of the Northern hemisphere (Northern Europe, Canada, North Asia, Alaska, Greenland), and hurricanes are expected to dump at least 50% more precipitation than if global temperatures remained the same.5



Ocean oxygen levels will decrease, and this would lead to more dead zones where no aquatic life can be supported. Source: ARC Centre of Excellence


Natural biodiversity is also disrupted, and 6% of the report's studied insects, 8% of plants and 4% of vertebrates will see their climatically determined geographic range reduced by more than half. This loss of habitat will eventually lead to the mass extinction of species that are unable to adapt to the sudden change to the climate.5


The consequences are dire, and our apathy and disregard for the environment will not only punish us in the future, but subsequent generations as well. As an iconic dog in a burning room puts it, “this is (not) fine.”


So let’s act.


According to IMF research, global fossil fuel subsidies amount to a staggering US$5.2 trillion! This is equivalent to almost 7% of the global GDP.6 The implications of this statistic are grim. As the world spirals towards a climate calamity, governments are actively forking out trillions of dollars to fossil fuel subsidies to accelerate the process. The IMF believes that if fossil fuels were not subsidised in any way, then global greenhouse gas emissions would have been 28% lower, and deaths from toxic air pollution 46% lower.6


The conclusion from the research is therefore rather simple. If we cut subsidies for fossil fuels and start taxing firms for their carbon emissions, then the carbon emissions and toxic air pollution in the atmosphere would drop, and humanity would be more successful in mitigating the climate change issue.


Widely considered as the most effective measure to mitigate the greenhouse emission problem, scientists and economists have long considered carbon taxing as the most impactful and direct method to combat against the causes of climate change.7,8,9


The aim of carbon taxing is simple. By taxing carbon emissions, it discourages firms from producing greenhouse gases to save on costs. Studies have shown that steadily increasing the carbon tax from US$15/ton and $10 more yearly would cut fossil fuel pollution by 30% in the first 5 years alone, allowing countries to hit the carbon emission targets set by the Paris Accords easily.10


At the same time, prioritising the environment does necessitate that we give up our economic growth. There is general consensus among economists, whether it be economists with expertise in climate economics, resource economics or even economists from all sectors that carbon taxing is the most efficient market-based mechanism to correct the inefficiencies in the carbon emissions market.9,11,12 In fact, economic analysis of carbon taxes has been thoroughly analysed and advocated by economists.13





Diagrams of how carbon taxes help to correct market inefficiency, with analysis from the source. The study of carbon taxes is taught as early as in introductory economics classes. Source: Economics Help


Often, people believe that carbon taxing remains ineffective as firms can simply pass on the higher cost of production to consumers instead to protect their profits. However, Christopher Knittel, a Professor of Applied Economics, suggests that proper structuring of carbon taxing such as giving out carbon dividends (distributing carbon tax revenue to consumers), can help consumers adjust to the higher cost of goods and services. Additionally, carbon dividends encourage consumers to look at more eco-friendly options. If they are going to receive the carbon dividends regardless of what they purchase, why not use cheaper products that have lower carbon emissions, thus saving more money for themselves? This competition between firms to look for greener alternatives for a lower cost of production also incentivises innovation towards cleaner energy sources.14


Despite all the doom and gloom, there may still be hope for humanity. The idea of a carbon tax has become increasingly popular. The Pew Research Center has found that more than 70% of the public supports a carbon tax in 2021, a significant increase from a mere 30% in 2014.15,16 Companies are also becoming more receptive to carbon taxing. More than 2000 companies worldwide have started internally pricing carbon to prepare for a future where carbon pricing is practised ubiquitously.17 While these policies are practised internally and thus not regulated by an external overseer, companies volunteering to price carbon are a step in the right direction.


Youths worldwide participate in demonstrations to pressure political leaders to take action to prevent climate change under the international climate change movement School Strikes for Climate, inspired by environmentalist Greta Thunberg. Source: Anadolu Agency


While individuals may appear powerless and inconsequential to decision-makers, nothing could not be any further from the truth. Lobbying works, as shown clearly from the list of Congress representatives on the Climate Citizen Lobby’s website who support a carbon tax, a list that is still growing.18


The flood is imminent. Scientists and economists have given humanity the blueprints for the ark. It is high time we use it should we desire to live another day.



References

  1. Ripple, W. J., Wolf, C., Newsome, T. M., Gregg, J. W., Lenton, T. M., Palomo, I., Eikelboom, J. A. J., Law, B. E., Huq, S., Duffy, P. B., & Rockström, J. (2021). World Scientists’ Warning of a Climate Emergency 2021. BioScience, 9, 894–898. https://doi.org/10.1093/biosci/biab079

  2. Tollefson, J. (2021). COVID curbed carbon emissions in 2020 — but not by much. Nature, 7842, 343–343. https://doi.org/10.1038/d41586-021-00090-3

  3. The Greenhouse Effect and our Planet | National Geographic Society. (n.d.). Retrieved May 31, 2022, from https://education.nationalgeographic.org/resource/greenhouse-effect-our-planet

  4. IPCC, 2021: Climate Change 2021: The Physical Science Basis. Contribution of Working Group I to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [Masson-Delmotte, V., P. Zhai, A. Pirani, S.L. Connors, C. Péan, S. Berger, N. Caud, Y. Chen, L. Goldfarb, M.I. Gomis, M. Huang, K. Leitzell, E. Lonnoy, J.B.R. Matthews, T.K. Maycock, T. Waterfield, O. Yelekçi, R. Yu, and B. Zhou (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, In press, doi:10.1017/9781009157896.

  5. Buis, A. (2019, June 19). A Degree of Concern: Why Global Temperatures Matter – Climate Change: Vital Signs of the Planet. Climate Change: Vital Signs of the Planet. https://climate.nasa.gov/news/2878/a-degree-of-concern-why-global-temperatures-matter/

  6. Coady, D., Parry, I., Le, N.-P., & Shang, B. (2019). Global Fossil Fuel Subsidies Remain Large: An Update Based on Country-Level Estimates. IMF Working Papers, 89, 1. https://doi.org/10.5089/9781484393178.001

  7. Hagmann, D., Ho, E. H., & Loewenstein, G. (2019). Nudging out support for a carbon tax. Nature Climate Change, 6, 484–489. https://doi.org/10.1038/s41558-019-0474-0

  8. Rosenberg, S., Vedlitz, A., Cowman, D. F., & Zahran, S. (2009). Climate change: a profile of US climate scientists’ perspectives. Climatic Change, 3–4, 311–329. https://doi.org/10.1007/s10584-009-9709-9

  9. Fuller, D., & Geide-Stevenson, D. (2014). Consensus Among Economists—An Update. The Journal of Economic Education, 2, 131–146. https://doi.org/10.1080/00220485.2014.889963

  10. Price On Carbon (Video) | Carbon Pricing | Citizens’ Climate Lobby. (n.d.). Citizens’ Climate Lobby; https://www.facebook.com/CitizensClimateLobby/. Retrieved May 31, 2022, from https://citizensclimatelobby.org/price-on-carbon/

  11. Howard, P. H., Sylvan, D., Howard, P. H., & Sylvan, D. (2015). The Economic Climate: Establishing Consensus on the Economics of Climate Change. https://doi.org/10.22004/AG.ECON.205761

  12. Haab, T. C., & Whitehead, J. C. (2017). What do Environmental and Resource Economists Think? Results from a Survey of AERE Members. Review of Environmental Economics and Policy, 1, 43–58. https://doi.org/10.1093/reep/rew019

  13. Cuervo, J., & Gandhi, V. (1998). Carbon Taxes: Their Macroeconomic Effects and Prospects for Global Adoption: A Survey of the Literature. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.882354

  14. Moseman, A. (2022, January 11). Will companies pass on the cost of a carbon tax to consumers? | MIT Climate Portal. MIT Climate Portal. https://climate.mit.edu/ask-mit/will-companies-pass-cost-carbon-tax-consumers

  15. Americans see too little federal action on climate change, back range of policies to reduce its effects | Pew Research Center. (2020, June 18). Pew Research Center Science & Society; https://www.facebook.com/pewresearch. https://www.pewresearch.org/science/2020/06/23/two-thirds-of-americans-think-government-should-do-more-on-climate/ps_2020-06-23_government-and-climate_00-01/

  16. Amdur, David and Rabe, Barry G. and Borick, Christopher P., Public Views on a Carbon Tax Depend on the Proposed Use of Revenue (July 31, 2014). Issues in Energy and Environmental Policy, No. 13, July 2014, Available at SSRN: https://ssrn.com/abstract=2652403

  17. Putting a price on carbon - CDP. (2021, April 21). Home - CDP. https://www.cdp.net/en/research/global-reports/putting-a-price-on-carbon

  18. Despite the pandemic, Citizens’ Climate Lobby continued to grow in 2020 – good news, since we have strength in numbers. If you have friends who care about climate change, invite them to train with us! : CitizensClimateLobby. (n.d.). Reddit. Retrieved May 31, 2022, from https://np.reddit.com/r/CitizensClimateLobby/comments/l5omkq/despite_the_pandemic_citizens_climate_lobby/


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