WEBVTT

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"This piece of ancient plant matter

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kick-started an era of us

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messing majorly with our planet."

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"Of course,

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the most logical way of stopping that

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is burning less of this and other fossil fuels."

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But that's not happening nearly fast enough.

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"Enter: The carbon tax."

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An alluringly simple idea:

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Just put a price tag on carbon emissions

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that are destroying our planet.

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The more you pollute, the more you pay.

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Leading – in theory – to less pollution.

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And making cleaner alternatives more appealing.

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Almost 30 countries worldwide

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have a form of it.

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"So can a carbon tax stop us from polluting?"

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But first things first.

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Why are we focusing on carbon?

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"That's because as soon as we burn this,

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it becomes the biggest troublemaker."

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When you burn coal,

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it emits vast amounts of CO2.

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The same goes for oil and gas.

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Carbon emissions from fossil fuels

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are by far the biggest pollutant

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that's responsible for climate change.

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This is regular air.

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And this is what we're doing

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to our atmosphere right now.

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And once we turn on our "sun" -

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this one starts heating up much quicker.

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A little bit of carbon dioxide

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in the atmosphere is great.

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Because carbon dioxide is really, really good

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at absorbing and radiating the heat

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that gets reflected from the Earth's surface.

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It's what makes our planet warm enough to live on.

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"But we're taking it a little bit too far

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with all of this."

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We're blowing more of the stuff

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into the air almost every year.

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The only two dips you can see here?

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The 2009 financial crisis

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and the Covid-19 pandemic.

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Not exactly intentional.

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And pretty catastrophic.

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"But the carbon tax – ideally –

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would change that.

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Make things that pollute a lot

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more expensive,

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so that people will use or buy less of it.

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And in turn, this will make cleaner technologies cheaper

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and more attractive.

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It's so appealing

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because it seems so simple and logical."

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"It drives the lowest cost ways of

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reducing emissions."

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Simon Tudiver works for the Canadian government,

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it has had a form of federal carbon tax

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since 2019.

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"And it just sort of sends a broad signal

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to the marketplace

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that pollution shouldn't be free.

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And then it kind of lets all of the actors

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decide for themselves how best that works

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in their businesses and in their lives."

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27 countries and many more regions

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and cities have a carbon tax.

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It all started – unsurprisingly –

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with the Scandinavians.

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Finland, Norway and Sweden, as well as Poland,

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first introduced carbon taxes in the early 90s.

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Since then,

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many countries have joined the club.

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But the reality of a carbon tax is more complex

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than some economists might think.

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"There are many different ways to tax carbon emissions."

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You could tax the entire economy

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or just a specific sector.

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Some taxes only target companies of a certain size.

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A lot of the carbon taxes worldwide

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are taxes on fossil fuels.

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That means fossil fuel firms must pay

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for every liter or cubic meter of oil,

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gas and coal they extract.

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But in many cases,

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the additional cost is passed on to the consumer,

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incentivizing them to use less of it.

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"The next question is

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what to do with all the money you just collected?"

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One way is to reduce other taxes.

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"In Sweden,

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one has called this the green tax shift."

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This is Christian Thomann,

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he advised the Swedish government on tax policies

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for ten years.

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"One used an increase in environmental taxation

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to reduce the taxes on labor.

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That would be considered

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to be a growth enhancing reform."

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Switzerland uses two thirds of its revenue

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to reduce health insurance

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and social security payments,

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and invests the rest into low emission sectors.

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Canada takes it one step further.

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"The revenue we collect from

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that federal fuel charge,

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the vast majority of that

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is returned directly to individuals and households

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through lump sum payments.

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And so it's really designed to help

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with the affordability of carbon pricing overall."

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"And that idea of redistribution

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doesn't have to stay within one country."

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If it were spread out globally,

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the richer nations could give the collected taxes

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to the countries of the Global South –

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which are much less responsible for climate change

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but are hit the hardest.

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A global carbon tax would make that possible.

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A good idea in theory, but...

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"If you've heard anything about climate negotiations,

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you know that getting everybody

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to agree to a set tax rate

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is going to be really difficult.

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But there is another way of pricing carbon

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that needs to be mentioned –

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it's called emissions trading."

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This means putting a cap on the amount of CO2

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certain industries can emit.

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A company that exceeds that limit

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must buy extra allowances or will face penalties.

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If a company emits less,

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they can sell those allowances to other companies.

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This is supposed to ensure that the entire industry

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stays within the designated limit.

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The EU, for example,

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has a system like this in place.

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The same goes for China, Indonesia and Mexico.

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Together,

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carbon taxes and emissions trading systems

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already cover around a quarter

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of all carbon emissions worldwide.

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"So that's the theory.

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But do they work in practice?

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There are many, many studies out there

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that try to answer this question."

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Jessica Green looked at 37 of them

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for her own meta-study.

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"Carbon pricing is both emissions trading systems

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and carbon taxes are associated

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with small reductions in emission."

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Zero to two percent to be exact.

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Not a lot, but not nothing either.

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In single regions, it can be significantly more.

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Like in British Columbia, Canada.

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Where, according to this study,

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emissions fell by 5 to 15 percent in seven years.

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The same goes if you look at single industries:

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This study estimated that the carbon tax

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may have reduced UK power sector emissions

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by up to 26 percent.

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"Whether a carbon tax works or not

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depends on how high it is –

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that means how much money you have to pay

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per ton of emitted carbon dioxide."

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A metric ton of CO2 is what

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a one-way flight from New York to Paris

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emits per passenger.

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Or the emissions produced

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driving some 4000 km with an average car.

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Or burning over 900 of these coal briquettes.

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Uruguay had the highest carbon tax rate in 2023,

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followed by many European countries.

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But the tax rate rapidly falls to less

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than 20 dollars for many nations.

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"Most carbon taxes are set up

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to become more expensive with time

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to deter future investment.

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Economists and policy makers

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have fought for YEARS

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to find out how expensive

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a carbon tax has to be to work.

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But they agree on one thing:

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The prices right now are far too low."

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A carbon tax is thought to only take effect

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upwards of 60 to 100 euros per ton.

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Meaning right now,

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most countries are not taxing carbon enough

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at all.

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"Another worry about putting a price on carbon is

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that if one country decides

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to introduce a tax,

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the companies will just go abroad.

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One of the ways to prevent that

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is good old tariffs."

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That's what the EU is doing.

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If you want to import carbon-intensive goods

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like cement, iron and steel,

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or electricity for example,

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you need to pay a carbon tariff.

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There are also proposals

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to expand that idea further.

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Countries that introduce a way

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of pricing carbon –

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whether it's a tax or emissions trading –

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could form a group

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that then gets better trade conditions.

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These so-called "climate clubs"

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could incentivize other countries

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to join in and start putting a price on emissions.

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"So basically there is an opening.

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So you would both offer the carrot and the stick."

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"Arguably the biggest hurdle though

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is political opposition.

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You're not going to win elections

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by raising or even introducing new taxes.

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Quite the opposite:"

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"The low prices that we see

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for both carbon taxes and ETSs

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is a feature.

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It's not a bug.

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Politicians and policymakers are afraid

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to make carbon emissions more expensive

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because they will be punished at the polls."

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One way around that

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is to reduce other expenses,

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like in Sweden or Switzerland.

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Another is tax rebates, like in Canada.

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"Setting the price of carbon low at first

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and then only gradually increasing it is also key."

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But even then,

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carbon taxes can be extremely contentious –

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as seen here in Canada.

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Even still, countries like Indonesia, Morocco and Senegal

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are planning or considering a carbon tax.

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Brazil, Malaysia, Vietnam, Nigeria and others

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are doing the same with emissions trading systems.

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Overall, the share of emissions covered

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by carbon pricing

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has been rising steadily.

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"If you're talking to a developing country,

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maybe a national carbon tax

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will allow the country to develop.

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It's not as difficult to implement

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as an emission trading system.

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If you're talking about

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more developed countries.

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I would say that there, emission trading system

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might be more appealing."

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The question is whether enacting a carbon tax

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or setting up a trading system

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is worth the political fight

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and the bureaucratic effort that comes with it.

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That may depend a lot on the country.

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And opinions are split on this.

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"Sometimes those political

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and communications challenges

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can seem overwhelming.

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But I think, in the Canadian context,

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we can show that we've been able

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to implement an effective,

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functioning system."

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"I think if we're going to dedicate

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time and resources

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to fighting the climate crisis,

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then we need to do it in ways

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that are direct government interventions

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through things like technology standards,

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subsidies, incentives,

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the types of green industrial policy

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that we're increasingly seeing in Europe."

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If, after considering all of the above,

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a country still does decide

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to go with a carbon tax,

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there are a few things to consider:

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Overall carbon tax rates

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need to be set higher than they are right now.

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Lower-income households must be protected

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from the knock-on effects.

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You need to find a way

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to make it appealing to citizens -

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through rebates or tax breaks elsewhere.

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Industries that are hard to move abroad

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and are not that exposed

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to international competition –

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like transportation for example –

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are easier to target first.

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A carbon tax is by far

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not as simple and effective as it sounds at first

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and it can be more trouble than it's worth.

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It alone won't solve the problem.

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But putting a price on pollution

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is a step in the right direction.

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"Does your country have a carbon tax?

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Please let us know in the comments

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and subscribe,

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we post videos like this

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every Friday."