A closer look at carbon taxes.
Monica Prasad, Assistant Professor at Northwestern, had an op-ed in the NY Times regarding the effectiveness of carbon taxes in reducing greenhouse gas emissions. Ms. Prasad looked at four countries in Europe that have previously implemented carbon taxes, and notes that only one, Denmark, has been effective in materially reducing emissions. She asserted that the reason for this success in Denmark only can be attributed to the fact that in that country, the revenues derived from the carbon tax are re-invested into clean technology through government grants and subsidies.
If this re-investment process is not required as a part of the carbon tax policy, governments are sure to direct that revenue towards more traditional ways of spending the taxpayers’ money. (Ms. Prasad describes it as a government’s “cash cow.”)
Summing up her point, Ms. Prasad stated: “Indeed, a carbon tax has been promoted almost as a panacea — just pop in the economic incentives and watch them work their magic. But unless steps are taken to lock the tax revenue away from policymakers and invest in substitutes, a carbon tax could lead to more revenue rather than to less pollution.”
This sounds about right to us. Maybe it isn’t as black and white as: without requiring re-investment into clean technology, nothing will change. However, it seems requiring re-investment of those revenues is the logical thing to do, after all, that is the problem a carbon tax is setting out to fix.
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