Could a Carbon Tax Solve the Climate Crisis?

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Is the climate change crisis as complicated a problem as it seems? Could a simple tax on carbon emissions be the solution?

Recently, Planet Money investigated these questions by speaking with economists about how a carbon tax, paired with cuts in the income tax, could drive down emissions of fossil fuels and boost use of renewable energy.

Planet Money is a twice-weekly podcast produced by NPR and Chicago Public Media. It attempts to explain the global economy in accessible, easy-to-understand segments.

In Episode 472: The One-Page Plan To Fix Global Warming the Planet Money team seems to find consensus among economists that a carbon tax could work — and work fast and without excessive regulations.

Carbon is released as carbon dioxide (CO2) when a hydrocarbon fuel, such as coal, natural gas, and petroleum, is burned. Scientific opinion on global warming explains that carbon dioxide is a heat-trapping “greenhouse” gas and its increasing presence in the atmosphere is the leading contributor to rising temperatures around the world.

The reduction of greenhouse gases, especially CO2, that are released into the atmosphere is widely accepted as the primary way to fix global warming. But how does a country fueled by and seemingly addicted to coal, oil, and natural gas make this happen?

Voluntary reductions in energy consumption, driving less, switching to more fuel-efficient vehicles, eating less meat, and using renewable energy will all help, but individual, heroic efforts alone may not enough. While we can slow down the rate of damage, the problem has grown beyond the ability of the average person to solve with behavior modification.

During an interview with Planet Money, Henry Jacoby, an economist at MIT’s business school, states that a single-page bill, which includes a carbon tax paired with reciprocal cuts in the federal income tax, is all that’s needed.

Jacoby asserts that a tax on fossil fuels in proportion to the amount of carbon they release would make coal, oil, and natural gas more expensive. This additional cost would immediately encourage businesses, industries, and people to be more efficient or shift quickly to renewable energy sources, such as solar or wind power.

Because carbon taxes can be regressive and hit low-income groups harder, this regressive impact would be offset with income tax credits, cuts, or refunds. And as the cost of buying gas or heating a home goes up with the new carbon tax, similar tax offsets would be available to everyone.

This market-driven solution would replace the need for complicated, direct regulations on consumption, emissions, and production of dirty hydrocarbon fuels. It’s obvious the current plan of ineffective regulations isn’t working; but because this simple plan would require an act of Congress, don’t expect anything to change any time soon.

Oil refinery at night creating a huge smoke cloud with reflections on the nearby ocean image from BigStock.

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