carbon tax policy

carbon tax policy

Question One                                                      

Designing and implementing a successful carbon tax policy requires adherence to certain guiding principles to ensure that it covers all the desired emission trading. For effective carbon tax policy, there are specific standards that the design process must meet. First, while designing a carbon tax, it must consider administrative simplicity (Metcalf, 2018). In this case, the entire carbon tax processes must be simple and easy to manage, control, and administer. In its design, the carbon tax should be simple and easy to understand by all the parties involved. The government agency or environmental authority in charge should be able to follow up on the process effectively and efficiently. Secondly, it should be designed in such a way that it is easy to comply with for the taxpayer. For example, the transport and energy firms that emit carbon and are required to pay tax should have a simplified and easy process of payment, favorable terms of compliance, and tax amounts equivalent to their emissions.

Further, there should be clarity on who is responsible for collecting and remitting the taxes. Lastly, the program should be designed in a way that avoids features that dilute price signals. A carbon tax is a form of carbon pricing whereby tax is levied on carbon content fuels or carbon emitters, and therefore, the tax program should not interfere with the amount of tax paid for the emission.

Question Two

It is essential to address every issue that comes with carbon regulation to ensure there are regulations designed to control them.  Aspects such as downstream will help to understand whether to include firms producing or importing raw materials that contain carbon dioxide, while downstream regulations can help to control direct sources of carbon dioxide such as vehicles and plants. When it comes to which greenhouse gas to regulate in the design, it is vital to analyze the most dangerous emitted gas by the majority of the firms or other pollutants. In this case, carbon fits the description; therefore, the Clean Air Act may apply. Important to consider is carbon capture and storage, which is an upcoming technology not yet demonstrated. In designing carbon tax, the possibility of this technology needs to be considered because some emitters may successfully implement the idea. Lastly, border adjustments need to be considered while designing the carbon tax. This requires that importers of carbon products are included in the tax, while those who export products with carbon contents are excluded.

Question Three

While designing carbon tax, specific sectors should not be omitted for any reason. For example, if small industries that emit lower percentages exempted from the tax, their total emission will not be accounted for in a long period (Metcalf, 2018). Also, if specific sectors excluded, then some firms may hide in those sectors to avoid the levy. Exempting small emitters is another risk that should be avoided in the design.

It should be noted that, however, low the rate of carbon emission, it degrades the environment. Further, the small emitters may grow in carbon volume after a more extended period. It is also risky to sue differential tax rates to ease the tax burden for a specific group. This may create issues of inequality in the tax system, and other taxpayers may default. Besides, favoring a particular group means a real loss of environmental value loss compensation from firms or individuals involved.

Reference

Metcalf, Gilbert E. Paying for Pollution: Why a Carbon Tax is Good for America. Oxford University Press, 2018.