• Research shows that putting a price on carbon-based fuels, in the form of a fee or tax, is an effective way of reducing GHG emissions and pollution levels across the globe.
  • A carbon tax policy can raise significant revenue for countries, which can then be used to address the economic harm caused by the burning of fossil fuels.
  • Countries yet to put in place a carbon tax should learn from experiences of places like South Africa and Canada’s British Columbia that have successfully implemented one.

In 2020, we witnessed several extreme weather events around the globe. There were hot and dry weather conditions that led to record-setting wildfires in vast areas of California, Brazil and Australia. And that year’s hurricane season featured 30 destructive named storms in the North Atlantic and 12 land-falling storms in the US.

For the 2021 Atlantic hurricane season, meteorologists at Colorado State University predict that there is about a 6 in 10 chance of another active hurricane season ahead. Research further shows that long-running droughts have destroyed agricultural products and have pushed millions of people into hunger in Madagascar and Zimbabwe. Accordingly, it has been projected that global warming has the potential of condemning over one-third of the earth’s animal and plant species to extinction by 2050 if greenhouse gas (GHG) emissions continue to rise unchecked.

Taking into account the possible health impacts of climate change, the World Health Organisation (WHO) projects that climate change is expected to cause approximately 250,000 deaths annually between 2030 and 2050, and 38,000 due to heat exposure in elderly people. Thus, there is an urgent need for action to curb the effects of global change, including the potential for introducing carbon taxes as a means to combat environmental pollution.

The case for carbon taxes

Many economists have argued that carbon taxes are the most efficient and cost-effective way to curb climate change and address the problem of global warming. According to the Organisation for Economic Co-operation and Development (OECD), a carbon tax is “an instrument of environmental cost internalisation. It is an excise tax on the producers of raw fossil fuels based on the relative carbon content of those fuels.”

Research shows that putting a price on carbon-based fuels, in the form of a fee or tax, can be an effective way of reducing GHG emissions and pollution levels across the globe. By placing higher taxes on carbon-based fuels, households and industries can reduce the level of pollution and look to alternatives like solar power and hydrogen engines, which have lower impacts on the environment. The implementation of a carbon tax system, therefore, provides an incentive for businesses and industries to develop more environmentally friendly production processes. The taxing of GHG emissions encourages investment in renewable energy and leads to further technological developments. In recent years, evidence has shown that technology and innovation have made solar energy more efficient and effective for the purpose of reducing the costs of pollution.

Also, the implementation of a carbon tax policy can raise significant revenue for countries, which can then be used to address the economic harm caused by the burning of fossil fuels. Governments could, for instance, use revenue derived from carbon taxes to reduce personal income taxes, future deficits, or to invest in clean energy and climate adaptation.

Regional, national and subnational carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax)
Carbon Pricing Initiatives
Image: C2ES

A notable example is the implementation of a carbon tax in the Canadian province of British Columbia since 2008, which has also been celebrated globally as a textbook example of carbon taxation in a sub-state actor, as it covers approximately 70% of provincial GHG emissions. The even-handed coverage of the purchase and use of fossil fuels by both households and industries in the province has been viewed as a departure from carbon taxes in other countries that exempted politically influential industries. Generally, the British Columbian carbon tax policy has been successful in significantly reducing the level of GHG emissions in the province without compromising economic growth and development.

African countries have also taken part in the implementation of carbon taxation schemes. South Africa is a good example of an emerging economy that is pursuing action against global warming and climate change by introducing a carbon tax system. South Africa’s carbon tax came into force in June 2019 and focuses on carbon emissions from processes in the industrial, power, building and transport sectors. The South African carbon tax targets carbon emissions above a certain level from fuel combustion, electricity generation and industrial processes, and covers 80% of the country’s GHG emissions. The perceived progress in South Africa’s carbon tax policy has led to the increased calls for Kenya, Uganda, Nigeria, Rwanda and other African countries to reform extant tax laws to introduce a carbon tax system for the purpose of reducing environmental pollution in the extractive sector.

energy, mining, metals, blockchain

What is the World Economic Forum doing to help companies reduce carbon emissions?

Corporate leaders from the mining, metals and manufacturing industries are changing their approach to integrating climate considerations into complex supply chains.

The Forum’s Mining and Metals Blockchain Initiative, created to accelerate an industry solution for supply chain visibility and environmental, social and corporate governance (ESG) requirements, has released a unique proof of concept to trace emissions across the value chain using distributed ledger technology.

Developed in collaboration with industry experts, it not only tests the technological feasibility of the solution, but also explores the complexities of the supply chain dynamics and sets requirements for future data utilization.

In doing so, the proof of concept responds to demands from stakeholders to create “mine-to-market” visibility and accountability.

The World Economic Forum’s Mining and Metals community is a high-level group of peers dedicated to ensuring the long-term sustainability of their industry and society. Read more about their work, and how to join, via our Impact Story.

Learning from experience

The adverse effects and consequences of global warming and climate change are no doubt getting worse every day. The world keeps witnessing increases in temperatures and rises in sea levels. Extreme weather events – such as heatwaves, rainstorms, cyclones, blizzards and droughts – will no doubt continue to occur more often and with greater intensity if the level of GHG released into the atmosphere remains unchecked. In light of this, it is necessary that countries across the world introduce a carbon tax system that aims to discourage pollution, promote greater energy efficiency and enhance the use of cleaner carbon innovations – all of which are critical to achieving success in the greening of the global economy.

If the world is to address the adverse effects of rising sea levels, changing weather patterns and extreme weather events, countries need to step up their efforts to reduce the level of GHG emissions. In particular, countries that are yet to put in place a carbon tax policy should learn from the experiences of other countries that have successfully implemented a carbon tax, with a view to developing unique strategies that will help to mitigate global warming and climate change.