Carbon tax is tax that is paid for the burning of carbon-based fuels such as oil and gas. Essentially, carbon tax is the government’s key policy for the control and eventual elimination of fossil fuel combustion, which is known to disrupt climate balance. It is one way – if not the only way – that users of carbon fuels can make up for the climate challenges they cause by throwing carbon dioxide into the atmosphere. When set at the right rate, it can motivate industries to shift to clean energy just because it becomes a more economical option.
Interestingly, carbon chemistry is as powerful as it is simple. The burning of fossil fuels deposits CO2 into the air in quantities that are directly proportional to the fuel’s carbon content. This means the carbon tax can be levied “upstream” on the fuel itself as it is drawn out from the ground or imported into the U.S., hence simplifying its administration immensely. Carbon and hydrogen atoms are responsible for the energy found in fossil fuels.
Burning these atoms release heat energy while converting carbon to carbon dioxide. Coal contains the most carbon while natural gas, with a high carbon-hydrogen ratio, has the least. Burning these fuels delivers CO2 into the air, which reaches the upper atmosphere and stays there for nearly a century, trapping heat from the earth and back, and causing different types of climate change like global warming.
The exact amounts of fossil fuel carbon content, such as heating oil and natural gas, are known. Carbon tax is patterned after these proportions, with coal being taxed higher compared to petroleum products and even higher than natural gas. This makes it easy to document as well as measure carbon tax.
Carbon tax is paid “upstream,” that is, during their extraction of fossil fuels and introduction to the world of commerce, or as they are imported into the U.S. The cost of tax can be passed along by fuel suppliers and processors to the extent allowed by current market conditions. With carbon tax, consumers and producers get a monetary reward for reducing their CO2 emissions.
If carbon chemically bound into manufactured products, like plastics, is not burned, it will not be taxed. Also, any CO2 from energy production which is cloistered permanently instead of being deposited into the atmosphere will not be taxed and will just receive offsetting tax credit. Additionally, certain tax proposals come with exemptions for businesses that are export-dependent to keep them competitive in the global market.