Carbon Tax as a Solution for Climate Change

Running head: CLIMATE CHANGE 0
English Essay
Carbon tax is the best solution for
climate change?

CLIMATE CHANGE 1
Climate change is defined as the change in the global environment which occurred due to
direct or indirect human practices. It is a result of increasing greenhouse gases in the
environment due to human activities such as deforestation, use of non-renewable energy
sources and burning of fossil fuel (Pindyck, 2013, p.865). In order to address this issue, the
government can impose a carbon tax on carbon emissions of companies and people. A carbon
tax is a fee that is imposed by the government on the use of fossil fuels or carbon-based fuels
including gas, coal and oil (Murray and Rivers, 2015, p.678). Many countries including the
United Kingdom, Sweden, Australia, Ireland and Chile has imposed a carbon tax policy
(Carbon Tax, 2018, n.p). The issue is whether imposition of a carbon tax can assist in
reducing carbon emissions caused by corporations and individuals that cause climate change.
A carbon tax can increase the administrative costs for implementation and collection of tax
which will slow down economic growth of countries. A carbon tax did not guarantee that
carbon emissions will be reduced because companies can shift their locations to avoid carbon
tax. Although the carbon tax can reduce carbon emissions by eliminating the use of fossil fuel
in the manufacturing process, and it can increase the investment in renewable energy sources
such as sunlight, tides, wind and biomass. However, carbon tax is not an effective option for
mitigating the risk of climate change.
It is difficult to increase investment in renewable energy because the administrative costs
relating to managing and collecting of the carbon tax will be substantially high that will slow
down the country’s economy. The government has to make high investments to ensure that
every organisation pay carbon tax accordingly and it became a new burden for manufacturing
firms, customers, society and the government. The manufacturing companies are more likely
to increase prices for their products and services to mitigate the carbon tax expenses which
increase the financial burden of the public (Conefrey et al., 2013, p.941). Furthermore,
investors are less likely to invest in countries that impose a carbon tax to save capital which
reduces their economy. In Australia, 93.38 percent of the energy consumed through fossil
fuel which makes it difficult for the government to encourage organisations to use renewable
energy sources (Trading Economics, 2018, n.p). Therefore, if a carbon tax is imposed, then
prices of products and services will increase, and investment will decrease which will slow
down the economic growth.
However, a carbon tax can reduce carbon emissions of companies and individuals and
increase the investment in renewable energy sources. Carbon tax encourages organisations to
develop environment-friendly technology instead of using fossil fuels that are easily available

CLIMATE CHANGE 2
and relatively cheaper but has a harmful impact on the environment. Due to a high rate of
carbon tax, people would make efforts to find new and alternative sources of energy that are
environment-friendly such as wind, solar energy, biomass, and tides (Ploeg and Withagen,
2014, p.283). For example, Australian companies are investing in wind power as a source of
renewable energy which has grown 35 percent in five years up to 2011. These wind power
sources generate 4,455 megawatts (MW) of energy as of 2017, and they are expected to
increase up to 18,823 MW (Ramblingsdc, 2015, n.p). Therefore, if a carbon tax is imposed,
then investment in renewable energy increases which address the issue of climate change.
Although a carbon tax encourages investment in renewable energy, it is far from being an
effective solution for climate change. Organisations are more likely to increase their products
and services prices rather than investing in renewable energy sources because they require
high level of investment. The government will also face difficulty in investing in renewable
energy sources because the administration cost of imposing and collecting of carbon tax is
substantially high (Aldy and Stavins, 2012, p.176). Investors also did not prefer to invest in
countries that impose a high rate of carbon tax that would negatively affect the nation’s
economic growth (Carl and Fedor, 2016, p.57). If carbon tax is imposed, then purchasing
power and real (inflation-adjusted) salaries of people will be reduced. Therefore, carbon tax
negatively affects a country’s economic growth.
The government aims to reduce carbon emissions of corporations and people by imposing a
carbon tax; however, it did not guarantee that global carbon emission will be reduced. One of
the major contributors of greenhouse gases is manufacturing organisations; instead of paying
a high rate of the carbon tax, these corporations can shift their production facilities to
countries in which there is no policy of carbon tax (Martin, De Preux and Wagner, 2014, p.1).
More than 53 percent of manufacturing work has been outsourced by companies to China and
India because of lower labour costs and lack of carbon tax (Statistic Brain, 2017, n.p).
Therefore, if a harmonised carbon tax system is not applied worldwide, then it cannot reduce
carbon emissions of large companies since they can switch their production location which
reduces the impact of a carbon tax system.
A carbon tax reduces the negative impact of climate change by reducing huge amount of
carbon emissions caused by manufacturing companies and individuals that increase
greenhouse gases in the environment. If the government did not make appropriate efforts to
reduce carbon emissions, then, it will damage the environment and its resources. In order to