The Basics of Carbon Tax Policy

Carbon Tax Policy pic

Carbon Tax Policy
Image: cbo.gov

The former executive vice president of Exploration and Commercial at Shell Upstream Americas and Executive Vice President Investor Relations for Royal Dutch Shell, David Lawrence received his PhD in geology from Yale University. David Lawrence frequently writes on topics relating to energy and climate issues, including a carbon tax, one of the most prominent energy issues in the United States today.

At its core, a carbon tax refers to a fee based on the amount of carbon dioxide emitted from the burning of fossil fuels. A carbon tax effectively functions as a tax on carbon emissions, which has become a major environmental issue in recent decades.

In most cases, governmental organizations collect a carbon tax at a point far “upstream,” typically when the fuels are collected and first introduced to commercial markets. Because carbon taxes result in greater expense to producers, producers are expected to increase the consumer price of carbon-related products. In this way, both consumers and producers are incentivized to reduce their overall carbon emissions.

Carbon tax policies often include special provisions for exempt businesses such as export-heavy entities, which must keep carbon emissions high in order to compete in the global marketplace. Similarly, plastics manufacturers are only taxed on the carbon they use to make products, not on carbon they sequester from the atmosphere.

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