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Experience with the EU Emissions Trading Scheme (EU-ETS) has been useful in showing how low and unpredictable prices of carbon allowances discourage investment in low-carbon technologies. Attempts are underway to adjust the scheme to raise the allowance price, and thus increase the price of fossil fuels – incidentally bringing the ETS closer to a carbon tax. There are also calls for the allowances to be auctioned, which would bring the scheme closer still to a carbon tax by providing revenue to governments. Such revenue could be used to reduce (or prevent the rise of) some other taxes and to help vulnerable households and the economy generally. It is now dawning on people that free handouts of ETS allowances have in fact a real cost to the general public.[1]

Reform that takes the ETS closer to a carbon tax is like going full circle. A carbon tax was initially proposed by the European Commission in 1991 for reasons of its reliable price, its revenue, its potential fairness and its ease of application, not to mention the systemic benefits to recycling, renewables, organic farming etc. But an emissions trading scheme was chosen instead. Nevertheless, independent reports from extensive studies in Ireland saw a strong case for carbon taxes – including studies and publications by the Commission on Taxation,[2] economists,[3]  the Environmental Protection Agency[4] and the Royal Irish Academy,[5] while the Combat Poverty Agency approached carbon taxes with constructive proposals of its own for use of the revenues.[6] Eventually, Ireland introduced a carbon tax in 2010,[7] but applied only to selected fossil fuels in the “non-traded sector”, that is, to some of the emissions not already covered by the EU Emissions Trading Scheme. Ireland’s experience with a carbon tax is itself now a focus of interest, as are applications in some other countries of the EU that used the revenues to good effect.[8] The IIEA throughout has been a prominent platform for these and related discussions.[9]

Is interest in carbon tax warming up?  Some countries’ efforts to reform the EU-ETS amount to bringing in a hybrid of ETS plus carbon tax. For example the UK has introduced a minimum or floor price of carbon, and Ireland has also seen a preliminary analysis of a carbon floor price.[10] But the major players – China and the USA – are mainly debating and experimenting. The OECD, long-term advocate of an effective carbon price,[11] suggests that China could consider moving “towards national carbon pricing, preferably by implementing a carbon tax, depending on experiences with the pilot [emissions trading] schemes”.[12] Lack of an effective environmental tax system in China may have contributed to its environmental problems and the Ministry of Finance plans to introduce a carbon tax on enterprises that are large users of fossil fuels by the end of the 12th Five Year Plan (2011-2015). However, coordination and collaboration between levels of government present many obstacles.[13]  Carbon consumption, rather than carbon production, is increasingly recognised as the target for policy, requiring application of tax adjustments at the border to ensure that imports of carbon-intensive goods from countries without a carbon price are treated on the same basis as the importing country’s domestic production.[14] Border adjustments on imports from China and associated hassle with World Trade Organisation rules would be avoided if China and other exporters impose their own carbon tax.[15] A number of economic journalists express similar support for carbon taxes: “A levy on carbon is an idea whose time has come” according to the Financial Times,[16] and the European Commission is updating the rules on energy taxation, with a component to cover carbon.[17]

For the USA to take action at federal level, the present line-up in Congress would require a volte face in Republican (and some Democrat) views on global warming, let alone on introducing a carbon tax. Yet the former adviser to President Bush and Mitt Romney, economist Gregory Mankiw, says that the case for a carbon tax looks even stronger compared to other options on the table, advocating a carbon tax that is global, where each government can keep the revenue to use as it wishes.[18] ExxonMobil also prefers a carbon tax over cap-and-trade.[19] Recently the Harvard project on climate agreements has published a so-called climate diplomacy proposal. On the basis that any significant carbon policy must involve a meaningful price signal, and that the current focus on emissions targets fails to address the economic realities of achieving them, it decries the fact that carbon pricing has received little multilateral attention as “a glaring gap in climate talks to date”.[20]

Meanwhile some other jurisdictions, such as British Columbia in Canada,[21] have also acted on the need for a credible long-term carbon price. The carbon tax is certainly getting more attention; the issue is how to present it. A start could be to stop calling it a carbon tax. As one proponent[22] states: “Call it a carbon dumping fee or something that makes it seem more like a climate change solution.


Authored by Sue Scott


[1], Burtraw, D., D. Kahn and K. Palmer, 2005. CO2 Allowance Allocation in the Regional Greenhouse Gas Initiative and the Effect on Electricity Investors,  RFF DP 05-55., Sijm, J., K. Neuhoff and Y. Chen, 2006. “CO2 Cost Pass Through and Windfall Profits in the Power Sector” in Climate Policy, Vol 6. no. 1., Gordon, S., 2008. Carbon taxes vs cap-and-trade., Gullì, F. and L. Chernyavs’ka, 2013. “Theory and Empirical Evidence for Carbon Cost Pass-Through to Energy Prices” in Annual Review of Resource Economics, Vol. 5.

 [2], Convery, F. J., 1985. “Taxation and the Environment” in Commission on Taxation Fourth Report – Special Taxation. “…excise duties on fuels should be related at least in part to the degree to which they cause pollution.” p. 67. Stationery Office, Dublin., Commission on Taxation, 2009. Commission on Taxation Report 2009. Recommendation 9.1: “a carbon tax on fossil fuels should be introduced at a €20 per tonne CO2 to apply to all carbon emissions from the non traded sectors”, p.342. Stationery Office, Dublin.

 [3] , Fitz Gerald J. and D. McCoy, 1992. “The Macroeconomic Implications for Ireland” in J. Fitz Gerald and D. McCoy (eds.), The Economic Effects of Carbon Taxes, PRS no. 14. Economic and Social Research Institute, Dublin. See also ., Conefrey, T., J. Fitz Gerald, L. M. Valeri, and R. Tol, 2013. “Impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland” in Journal of Environmental Planning and Management, 56/7.

 [4], Scott, S. and J. Eakins, 2004. Carbon taxes: which households gain or lose?, ERTDI Report, Environment Protection Agency, Wexford., Bergin, A., J. Fitz Gerald and I. Kearney, 2004. The Macro-Economic Effects of Using Fiscal Instruments to Reduce Greenhouse Gas Emissions, ERTDI Report, Environmental Protection Agency, Wexford.

 [5], Royal Irish Academy, 2009. 8th Scientific Statement – Market-based policies for reducing carbon dioxide emissions, Dublin.

 [6], Combat Poverty Agency, 2003. Annual Report 2003, p. 26, Dublin.

 [7],923,en.pdf, Government of Ireland, 2000. Climate Change Strategy, “Appropriate tax measures, prioritising CO2 emissions, will be introduced from 2002”, p. 3., E. Gragan, Department of Finance, 2012. Reflections on the implementation of the carbon tax in Ireland, Presentation to the UCD/ NESC Workshop: Climate Change , Meeting Ireland’s 2020 Obligations, 16 May 2012.

 [8], NERI et al, 2007. Competitiveness Effects of Environmental Tax Reforms, Summary Report to DG Research and DG Taxation and Customs Union, EC. P. 36., Skou Andersen, M. and P. Ekins (Eds.), 2009. Carbon-Energy Taxation – Lessons from Europe, Oxford University Press., Convery, F.C., L. Dunne and D. Joyce, 2013. Ireland’s Carbon Tax and the Fiscal Crisis – Issues in Fiscal Adjustment, Environmental Effectiveness, Competitiveness, Leakage and Equity Implications, Paper to conference of the European Association of Environmental and Resource Economists, June 2013, Toulouse.

 [9] Download link, Convery, F. C. and S. Scott, 1997. “Giving substance to the Polluter Pays Principle”, paper to conference on Environment and EU Treaty Revisions: The IGC Review, IIEA., Scott, S., 1999. “Ten fears about carbon taxes” in the SEED Group, Sustainable Energy and the Environmental Imperative, IIEA Dublin.

Download link, Skou Andersen, M., J. Fitz Gerald and S. Scott, 2007. “Competitiveness effects of Environmental Tax Reform – COMETR”, paper read to seminar on Environmental Tax Reform, IIEA., Curtin, J. 2008. The Climate Change Challenge: Strategic Issues, Options and Implications for Ireland, IIEA Dublin.

 http://historyiiea.compublications/jobs-growth-and-reduced-energy-costs-greenprint-for-a-national-energy-efficiency-retrofit-programme , Curtin, J., 2009. Jobs, Growth and Reduced Energy Costs: Greenprint for a National Energy Efficiency Retrofit Programme, IIEA Dublin.–the-european-experience , Ekins, P., 2009. Carbon Energy Taxation – the European Experience, presentation to IIEA Dublin., Gallagher, E., 2011. Single Market Act – Energy Taxation, IIEA Dublin.

 [10], HM Treasury, 2012. Autumn Statement 2012., Curtis, J., V. Di Cosmo and P. Deane, 2013. Climate policy, interconnection and carbon leakage: the effect of unilateral UK policy on electricity and GHG emissions in Ireland, ESRI WP 458.

 [11], OECD, due 2013, Environmental policy tools and evaluation – Effective Carbon Pricing.

 [12], OECD, 2013. Economic Surveys: China March 2013, Box 2.4, page 151., Meade, R., 2013. China Coal and Climate Change: Reasons for Optimism? IIEA Dublin., Ng, E. 2013, “Head of Finance Ministry’s tax division endorses carbon tax” in South China Morning Post, 20 February 2013.

 [13] , Tian, W., 2012. “Officials weighing green benefits of carbon taxation” in China Daily, 6 January 2012., Xu, Y., 2012. “Environmental taxation in China: the greening of an emerging economy” in Milne, J.E. and M. Skou Andersen (eds.) Handbook Of Research On Environmental Taxation.


Dieter Helm, 2012. “Forget Kyoto: Putting a Tax on Carbon Consumption” in Yale Environment 360, November 2012.

 [15], Skou Andersen, M., 2009. “Carbon tax could help China head off tariff threat”, in D. Stanway, Reuters edition US, 16 November 2009. Also see ref. 21a below: Skou Andersen, M., 2012, “Carbon-Energy Taxation: Towards a global framework?”, presentation to seminar on BC’s Carbon Tax Shift: What’s Working? What’s Next? (at 46 minutes) Simon Fraser University.

 [16], “A least-worst tax” in Financial Times, 15 March 2013.  “A levy on carbon is an idea whose time has come…Right now, the case is overwhelming.”, “Tepid, timid – The world will one day adopt a carbon tax — but only after exhausting all the alternatives”. Economist, 29 June 2013, Leader p. 14.

 [17], European Commission, 2011. Energy taxation: Commission promotes energy efficiency and more environmental friendly products, Reference IP/11/468.

 [18], Mankiw, N. G., 2009. “Smart Taxes: An Open Invitation to Join the Pigou Club” in Eastern Economic Journal, Issue 35, Palgrave Journals.

 [19], ExxonMobil, 2013: “ExxonMobil’s views and principles on policies to manage long-term risks from climate change…it is our judgement that a carbon tax is a preferred course of public policy action versus cap and trade approaches.”

 [20], Morris, A. C., W. J. McKibbin and P. J. Wilcoxen, 2013. A Climate Diplomacy Proposal: Carbon Pricing Consultations. Harvard Project on Climate Agreements, Belfer Center for Science and International Affairs, Harvard Kennedy School.

 [21], Elgie, S., 2012. “BC’s carbon tax shift – Evidence of its effects after four years“, presentation to seminar on BC’s Carbon Tax Shift: What’s Working? What’s Next? (at 17 minutes) Simon Fraser University. See also Economist 21 January, “We have a winner”. , Galbraith, K, 2013. “A Carbon Tax by Any Other Name” in New York Times, 24 July 2013.

 [22], Block, B., 2008. Hansen to Obama: Support a Carbon Tax, Worldwatch Institute. Quoting James Hoggen, chair of the David Suzuki Foundation.