Problems of Carbon Tax •Production may shift to countries with no or lower carbon taxes. (so called ‘pollution havens’) •The cost of administrating the tax may be quite expensive reducing its efficiency. •Difficult to know the level of external cost and how much the tax should be. •Possibility of tax evasion. Higher taxes may encourage firms to hide carbon emissions. •If demand is price inelastic, the tax may have to be very high to reduce demand significantly. In the short term, firms may not feel they have many alternatives. Though other time, demand will become more elastic as more alternatives are generated. •Consumers dislike new taxes and often don’t believe that they will be ‘revenue neutral’. This is not an economic argument, but it is a political reality and explains why it is often difficult to implement. •A global carbon tax may curtail economic activity in the poor developing world because they can’t afford the small increase in energy costs, but the developed world may simply be able to pay. There may be need for a carbon tax to reflect different abilities to pay.
Posted on: Thu, 27 Jun 2013 02:40:09 +0000