Culture 3 min read

How Carbon Tax May Help Promote More Efficient Energy Use

Several countries have already implemented a carbon tax or a cap-and-trade program to help limit emissions. But how effective is this solution?

Image Credit: Pixabay

Image Credit: Pixabay

According to an article published in the journal Joule, a carbon tax could drive innovation and lead to more efficient energy use.

Despite advances in renewable energy sources such as wind and solar, fossil fuels remain the primary source of carbon many argue is responsible for climate change.

According to the Global Carbon Project, 89 percent of the carbon emissions in 2017 came from fossil fuels and industry. The analysis also predicted continuous emissions growth in 2019 driven by rising oil and gas use combined with rapid economic growth.

Proponents of the Carbon Tax argue that the solution is simple: To have a shot at halting global warming at the two degrees Celsius limit set by the Paris Agreement, we need to reduce and ultimately stop burning oil, coal, and gas.

But how?

The researchers at the Carnegie Institution for Science have an answer which involves heavily taxing carbon emission.

Lead author of the study, Rong Wan explained:

“It has long been theorized that raising carbon prices would provide an incentive to reduce emissions through energy efficiency improvements. So, we looked to history to determine how cost increases have affected energy use efficiency in the past.”

So, in collaboration with Nobel Prize-winning economist, Robert Solow, the researchers developed a productivity model to test their hypothesis. This led to an interesting finding.

How a Carbon Tax Could Incentivize More Efficient Energy Use

The team found that when the cost of energy comprises a more substantial fraction of that energy production, some countries found a way to either reduce energy usage or use it more efficiently. This finding is historically accurate for several global players, including Canada and Great Britain.

For instance, coal usage significantly decreased when Britain introduced it’s carbon tax.

This raises an obvious question; what happens if these historical relationships between energy cost and efficiency continue?

According to the productivity model, the dynamic relationship could lead to a 30 percent reduction in energy usage by 2100. The estimate is relative to simulations in which the researchers did not consider how a potential carbon tax could help incentivize efficient energy use.

Co-author of the study, Ken Caldeira noted:

“Other studies have examined how taxing carbon emission would drive innovation in renewables. But we show that it would also lead to more-efficient consumption of energy – not just by getting people to use better existing technology, but also by motivating people to innovate better ways to use energy.”

Why a Carbon Tax May Help, but is Not a Perfect Solution

In theory, a carbon tax or carbon pricing solution seems like a magic wand to help lower carbon emissions.

However, implementing the measure has often proved politically unpopular with voters. For example, Australia and France abandoned carbon tax initiatives when voters rejected the idea of higher energy prices.

On the other hand, Canada was able to make a carbon pricing solution more attractive to voters. The country achieved this by refunding some of these proceeds on tax returns.

Furthermore, it will be important to balance a carbon tax with economic growth. While Canada is leading the charge in this regard, the country still offers exemptions to industries facing competitive pressure. These industries participate in a separate program.

Reducing our global carbon emissions will be challenging. Plus, a carbon tax is not a blanket solution.

But, implementing such a tax may be one more tool in our toolbox to lessen our impact on global carbon emissions.

Read More: Why 100% Renewable Energy and Zero-Carbon Aren’t the Same Thing

Found this article interesting?

Let Sumbo Bello know how much you appreciate this article by clicking the heart icon and by sharing this article on social media.


Profile Image

Sumbo Bello

Sumbo Bello is a creative writer who enjoys creating data-driven content for news sites. In his spare time, he plays basketball and listens to Coldplay.

Comments (0)
Most Recent most recent
You
share Scroll to top

Link Copied Successfully

Sign in

Sign in to access your personalized homepage, follow authors and topics you love, and clap for stories that matter to you.

Sign in with Google Sign in with Facebook

By using our site you agree to our privacy policy.