Housing is an important issue today and will probably remain so for the foreseeable future. Governments would have to implement land policies and create incentives. I would gear those incentives towards providing housing options by supporting the rental market. Creating options where the market has not provided can restore balance
Implementing carbon taxes is a way for society to factor in the cost of pollution emitted. We enjoy the comfort and advantage of driving, however, that comes at a cost. While the benefits accrue entirely to the user of the car, everyone else pays in the form of pollution.
In this piece, we will explain how a carbon tax can help address climate change. Our discussion will focus on the direct impact experienced by consumers. One of those direct impacts is through the price we pay at the gas pump, although we levy carbon taxes on all carbon emitting facilities. A simple calculation shows that the impact is substantial. The carbon tax on gasoline, which is levied on a per litre basis, will increase over the years in Canada.
This discussion can apply to any industry. The only distinction would be the impact of the tax.
So how do we factor in the cost incurred by society?
From a societal point of view, market prices without taxes are too low. The industry does not factor the cost of pollution in the market price. Sellers and retailers of gas only incorporate the costs associated with production, transportation, distribution, and retail. There is no consideration for the costs associated with CO2 emissions. Here, the government would need to step in and levy a tax such that the price per litre of gasoline reflects environmental costs. We refer to this as a carbon tax, which converts a liter of gas consumption into units of pollution or CO2 per litre and applies a price to it. Greenhouse emission related taxes are very effective at reducing emissions.
From an economic stand-point, using a price as a mechanism to control demand is a practical method of fighting climate change. Since the price can facilitate the reduction in consumption of fuel and thus reduce emissions. From a societal point of view, without a carbon tax, we would be over-consuming fuel. The higher price will incentive drivers to drive less or buy more fuel-efficient vehicles.
A rise in price because of carbon taxes or even market prices can help reduce consumption to levels that are manageable. Governments can impose taxes to change consumer behavior towards fuel consumption and lessen the impact on our climate. Governments can also use the reduction in gas consumption because of the carbon tax to meet targets for international and climate change agreements.
Where should we invest carbon tax revenues?
It’s fairly easy to collect gas taxes for carbon emissions, but allocating those revenues to climate change initiatives only can be a challenge. Governments can use the extra funding to finance their budget deficits, directly or indirectly. The government should instead use the funds to fund carbon-reducing infrastructure, provide incentives for industry and individuals, and invest in the research and development of carbon-reducing technologies.
Electric car rebates are one example of a policy a government can implement and fund using carbon taxes. Ultimately, it is difficult to alter consumer behavior without providing alternatives and ensuring that those alternatives are accessible.
Equity is at stake when implementing carbon taxes…
The tax is fair since it’s linked to consumption. Governments impose the tax on a per unit basis and the total amount purchased for sales taxes. There are equity implications since consumers experience the impact of the tax differently. The carbon tax may be inequitable in the sense that it places a greater burden on those with lower-incomes. Since everyone would pay the same tax for the same level of gas consumption. However, the tax represents a greater share of their income.
The total carbon tax bill will be a higher share of a low-income person’s income. One way to solve this issue is for government to pay-out. In Canada, low-income residents are eligible for carbon tax rebates from the federal governments. The tax credits either reduce an individual’s or family’s tax bill or increases their tax refund.
The verdict on carbon taxes…
The carbon tax is a clear winner when it comes to effectiveness and fairness. However, there does remain skepticism about the use of the proceeds from taxes and permits equally. Equity is also at steak if governments don’t use their tools to address it by using targeted rebates and tax breaks.