December 27, 2011

Gas Taxes: Carbon Taxes Around The World

By Sonal Patel

A supplement to “The Big Picture: Gas Taxes” in our January 2012 issue.

More and more countries are considering carbon taxes in lieu of (or to accompany) a cap-and-trade program and are passing policy measures that provide financial incentives to curb carbon dioxide emissions.

According to the World Research Institute (WRI), a carbon tax can be defined as a fee imposed on fossil fuels based on the amount of greenhouse gases they emit. “A carbon tax places a fee on coal, for example, based on the amount of carbon dioxide (CO₂) that is released when coal is burned. The tax creates a cost for emitting [greenhouse gases, GHGs] into the atmosphere (for example, $25/metric ton of CO₂-equivalent) and in doing so provides a financial incentive for reducing GHG emissions,” the environmental think tanks says. Carbon tax policies could also include tax credits for activities that remove GHGs from the atmosphere.

The essential difference between a carbon tax and a cap-and-trade program is how each establishes a price for the reduction of GHG emissions. Whereas a carbon tax imposes a direct fee on fuels based on the amount of GHGs emitted, without limiting GHG emissions, a cap-and-trade program establishes a “cap” on GHG emissions and sets prices through supply and demand for emissions allowances in a trading market, the WRI says.

POWER looks at some countries that have carbon taxes as well as several others that have considered similar policy measures.

Australia

Australia’s Senate in November 2011 voted in a landmark bill that will impose a price on carbon emissions. The legislation sets a fixed carbon tax of A$23 (US$23.78) per metric ton on the top 500 polluters beginning July 2012. Increasing 2.5% annually, the tax will then move to an emissions trading scheme with a floating-rate price from July 2015. The government is expected to limit or increase the amount of tradable permits released every year, and companies would then be able to trade carbon credits with similar systems in New Zealand and Europe. See more details in January’s Global Monitor story, “Australia Levies Landmark Carbon Tax.”

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