Why a Carbon Tax is the Best Option

Here are reasons why a carbon tax is, in my opinion, the best option to curb carbon dioxide emissions.

1) It puts a price on carbon.  In our world one of the only ways to get the masses to move in a specific direction is to create financial incentives.  Money is such a driver in our world.  People favour a particular packet of cookies over another due to a 25 cent difference.  Cost is easy for everyone to understand as it involves little thought and very basic mathematical skills (greater than or less than).  People don't need to think about what they are feeling, what their philosophical preferences are, their ethical standards.  They don't need to read the label - just look at the cost.  If we believe that there is a need to reduce the amount of pollution in the air we breath we need to make it simple for people to decide whether to buy the car that will cost them 25 cents less per litre.  Clearly pricing carbon does that.

2) Consumption taxes are fairer than income taxes.

The poor spend less than the wealthy. The wealthy spend more than the poor.  Corporations spend even more money.  The more you spend the more you contribute to the economy of our society.   Since consumption taxes tend to be flat they do not dissuade economic activity by decreasing spending as income levels rise.  Taxes on consumption impose less tax (in absolute terms) on those who spend less than on those who spend more.  In addition there are much fewer loopholes and exemptions on consumption taxes.  No complicated credits, deferrals, allocations, etc.  You spend $1 you pay 5 cents.  You spend $2 you pay 10 cents.  Consumption taxes are also a form of flat taxation.  They do not negatively impact our desire to learn, excel, differentiate and create in the way that income taxes do.  Higher incomes (a consequence of excelling, differentiation and creativity) lead to higher absolute income tax rates.  In addition consumption taxes are similar to user fees - you use it, you pay for it.  You don't use it you keep your money.  For this last reason, consumption taxes encourage savings.  Based on a recent blog entry you know how important that is.  For all these reasons I am a proponent of consumption taxes and prefer them to income taxes, quotas, subsidies, etc. to influence behaviour and to raise money for governments.  Reduce income taxes and increase consumption taxes.

3) It is simpler than a subsidy or incentive.

I am a believer in the free market system.  For reasons already mentioned above individuals and corporations find it easiest to make decisions based on price as opposed to other more complicated factors.  A market only works when pricing is well understood, transparent and easy to transact in.  The simplest way to achieve this is to eliminate exemptions, quotas, floors etc based on complicated factors such as revenue/income levels, usage levels, geographic location, company stage, industry, etc.  Eliminating these complications creates a marketplace where everyone pays the same, known price and, consequently, makes it easier for consumers and corporations to evaluate whether to buy a particular product and whether to move in or out of a geographic area or industry.  It reduces the push and pull of an artificial hand causing industries to invest in particular technologies, provinces/states or cities.