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Executive Summary
Individuals and organisations should engage in activities that are viewed to promote environmental sustainability. The reason behind this is to ensure their survival, as well as that of their future generations. Increasing levels of greenhouse gases emitted into the atmosphere has mainly been attributed to industrial processes in the modern world. Motor vehicles and other machines are also major emitters of these gases. Carbon dioxide is the most commonly encountered of these harmful elements. It is produced in large quantities, especially in industrialised countries and localities. The main reason for this is that it is contained in most fuels produced today.
Increased emission of the gas into the atmosphere results in the depletion of the ozone layer above the earth surface. The result is the penetration of harmful ultraviolet radiations from the sun. The situation makes many people suffer from skin cancer and other ailments. Many people across the globe have also developed eye problems owing to these developments. Global warming resulting from the accumulation of carbon dioxide has also led to the melting of ice caps on mountains and in the Polar Regions. Consequently, there has been a rise in sea levels.
A number of measures have been adopted to manage the problem. They include, among others, promotion of the use of environmentally friendly components, such as bio-fuel. In this paper, the author analysed the use of carbon taxes to mitigate the problem. It is viewed as one of the most effective ways used by governments and other stakeholders to eradicate the problem. It entails levying taxes based on the carbon content of a product. As such, environmental sustainability is achieved. As a result, products with high levels of carbon attract higher taxes and vice versa. In this research, it was found that most organisations in Australia have strategies in place to promote environmental sustainability. However, some feel that it is the responsibility of the government to promote environmental sustainability. A number of factors affect entities in their attempts to bring down emission levels. They include technological issues, market, government, staff, business operations, as well as externalities. Majority of businesses in the country also feel that carbon taxes are effective in promoting environmental sustainability.
The current research found that social cost of carbon is one of the best parameters to determine the rates to be charged. The reason behind this is that it estimates the cost of the negative effects associated with emission of the gas. However, carbon taxes alone cannot be effective in addressing the issue of rising emission levels across the globe. The reason behind this is that the implementation of such regulations in one country results in carbon leakage. Consequently, the author recommends the use of border adjustment tariffs and bans alongside carbon taxes. The move has been associated with high success rates. The reason is that the strategy forces all countries to have emission regulations in place. Unfair competition is, therefore, discouraged. Petroleum products are also a major cause of pollution. Their taxing will be effective in promoting environmental sustainability.
Introduction
Background Information
Environmental sustainability involves making decisions and engaging in activities aimed at protecting nature (Swor & Canter 2011). Emphasis is often placed on preserving the earths capability to support life. Today, the subject has gained widespread popularity around the world. Governments across the globe are engaging in activities to promote a clean and healthy environment. They are encouraging their people to embrace green technology and other measures that are friendly to the environment. People have become more aware of the impact human and industrial activities have had on the environment. Environmentalists have always associated the term with responsible behaviour. To this end, people are expected to take note of the effect of their activities on the surroundings. For example, they are made aware of the harmful impacts of using fossil fuels and polluting the environment. Consequently, they should adopt measures to reduce the adverse effects of their actions. In most cases, such activities involve the reduction of the amount of waste generated. Using less energy is also a step towards promoting sustainability in the modern world.
Over the past number of years, governments and environmental agencies have conducted extensive research on the issue of environmental pollution and sustainability. Billions of dollars have already been spent on such programs. Most of the research work is aimed at assessing the impacts of human activities on the environment. However, it has not been possible for researchers to establish the long-term effects of such undertakings. The reason is that quantification of these effects is hard. However, there is a consensus among stakeholders across the globe that the risks are serious enough to prompt immediate response (Robson 2014).
The issue of environmental sustainability has also become one of the most sought after subjects in ecological economics around the world (Robson 2014). Research has shown that increasing economic activities are to blame for the continuous environmental degradation. Businesses and other commercial establishments are seen to have contributed to these environmental issues through various activities. All the undertakings, however, eventually translate to the accumulation of greenhouse gases, which is trapped in the earths atmosphere. Of primary concern to environmentalists and other stakeholders is the unsustainable use of water resources. It is most evident through activities, such as overfishing in lakes, oceans, as well as rivers. Fish and other aquatic flora and fauna play a significant role in promoting biodiversity in water resources (Conefrey et al. 2013). Their waste improves the fertility of water, hence enhancing the growth of water plants. The plants play a role in the reduction of carbon, one of the greenhouse gases. Businesses have also been seen to dump their waste into water bodies. Water resources are immense, which makes them ideal for waste disposal by establishments, such as factories (Conefrey et al. 2013). The most common forms of waste disposal into water bodies include the draining of industrial effluent, as well as oil spills by shipping companies transporting cargo around the world. The two also hinder the growth of water plants, leading to the accumulation of carbon in water and, eventually, in the atmosphere.
Businesses have also played a role in the degradation of the environment through the clearing of vegetation. The practice is often aimed at creating space to support economic activities (Backus 2012). For example, vast tracts of virgin forest are cleared for the construction of industries. Others are cut down to plant industrial inputs, such as palms. Farmers play the biggest role in the destruction of vegetation. They clear grasslands, shrubs, and trees to create room for crops. Businesses, especially those in the construction sector also target forests for trees. They engage in logging activities for the production of timber and poles (Backus 2012). In so doing, they lead to the accumulation of greenhouse gasses.
The reason behind this is that trees play an important role in the absorption of carbon dioxide from the atmosphere during photosynthesis. At the same time, they give off oxygen gas, which is vital in promoting human existence (Haugen 2010). Burning of fossil fuels has also been blamed for environmental degradation. The continued use of these energy sources has over the past years raised serious environmental and health concerns. They are the largest sources of carbon dioxide in our environment today. Annually, an estimated 21.3 billion tons of the gas is released into the environment following the burning of fossil fuels (Haugen 2010). Natural processes can only absorb half of this amount. As a result, there is an annual increase in the quantity of carbon dioxide circulating in our atmosphere of close to 10.65 billion tonnes. Over the past number of years, businesses have been seen to act with little regard for the adverse effects their activities have on the environment.
It is clear that we are using our environment in an unsustainable manner. As such, we need to look beyond the short-term gains of our economic undertakings. We should seek to find long lasting solutions to safeguarding our natural world (Swor & Canter 2011). Intensive research on the issue has provided nations with valuable information on the harmful effects associated with the emission of pollutant gases. More emphasis has been put on greenhouse gases. They are the most feared when it comes to environmental degradation. They produce the greenhouse effect, which results in the exhaustion of the ozone layer (Metcalf 2008). As a result, ultraviolet rays from the sun are capable of penetrating into the earth surface. Consequently, many cases of skin cancer are reported among the worlds population. It has also resulted in damage of human eyes. As a result, nations across the globe have to set aside vast sums of money to cater to the medical needs of persons suffering from these health disorders. People across the world also have to cope with the loss of loved ones as a result of cancer. Due to the depletion of the ozone layer, sunburns have also become more severe (Metcalf 2008). People have to incur more costs protecting themselves from sun burns.
Animals are not spared either from the adverse effects of the depletion of the ozone layer. Whales have been seen to be the most affected (Das 2011). Skin biopsies have shown evidence of severe sunburns among whales residing in the Gulf of California. The effect of the destruction of the ozone layer has also been felt by farmers across the globe. Many plant species rely on bacteria for nitrogen fixation and retention. One such crop is rice. It relies on Cyanobacteria for its nitrogen requirements (Deane 2011). The bacterial species has however been found to be extremely sensitive to ultraviolet rays. As a result, increased radiation levels from the sun will lead to the death of the bacteria. The supply of food for human consumption will, consequently, go down.
At the same time, melting of ice caps especially in the arctic regions has been reported following global warming. It is a change in the climate characterised by an increase in temperatures (Haugen 2010). It is also associated with increasing levels of greenhouse gases. Carbon dioxide is the most responsible for bringing about the change. The effects are detrimental, especially for tourism. Nations have continued to lose a lot of money following declining tourism activities. The ice caps were formerly a tourist attraction in many countries that have high mountains (Swor & Canter 2011). Their melting means that no tourists are willing to visit such destinations. An increase in the levels of greenhouse gases in the environment has also been found to result in the formation of acid rain. As a result, farming has been negatively affected. Many food crops can no longer do well as was the case several decades ago. Developed countries have been the worst hit with their carbon emissions being reported higher compared to those of developing nations (Haugen 2010). Acid rain has also led to the corrosion of surfaces. Buildings have been the most affected. A lot of money is therefore spent in the maintenance of such structures.
To deal with the greenhouse gas menace across the world, governments have come up with ways to reduce their emission. Carbon dioxide is the most emitted of all the greenhouse gases (Metcalf 2008). It is mainly released as a result of burning of products that contain carbon. One ton of atmospheric carbon translated to the production of 3.7 tons of carbon dioxide gas (Hsu 2011). One of the concepts that have been developed to deal with the menace is the introduction of carbon taxes (Metcalf 2008). Many governments around the world including that of Australia have adopted the concept. Carbon taxes are mainly levied on fuels. The amount of tax levied per product depends on its carbon content. It is also viewed as a form of carbon pricing. All hydrocarbon fuels are undergoing this kind of taxing. They include natural gas, coal, and all petroleum products. The carbon contained in them is released into the atmosphere when they undergo combustion. The taxing of the fossil fuels can be done at any point of the production cycle (Hsu 2011).
Problem Statement
Carbon taxes offer governments a cost-effective means of reducing the emission of greenhouse gasses. Usually, governments assess the adverse effects that the emission of the greenhouse gases cause. The amount of money taxed on carbon should reflect on the negative consequences of these emissions (Metcalf 2008). It can also be described as a Pigovian tax. It is a form of tax applied to market activities that are viewed to have unfavourable outcomes (Aizenman 2009). The justification for the levy is to correct a particular inefficient outcome. The tax should be equal to the social cost associated with the adverse market activities. If the fees are not properly put in place to match the social cost, the market activities will not be successful (Howarth et al. 2014). Taxing of market activities tends to hinder production activities. The reason behind this is the increased cost of production owing to taxation. As such, it may have a detrimental effect on economic growth. The Pigovian tax also results in an increase of goods and services in a particular sector. As such, they become less desirable to consumers. However, it does not always negatively impact on production. The petroleum industry is a good example. Despite the taxing of the petroleum products, they are still produced on a continuous basis. The main reason behind this is the importance of the sector to world economies. Petroleum products also do not have close substitutes (Jerry 2009). As such, the industry continues to thrive despite the hefty taxes imposed.
There have also been concerns that carbon tax creates inequality. It has been described by some as a regressive tax. It includes levies that decline with a rise in the target product (Green 2008). The result is that the average rate of taxation exceeds the marginal tax. As a result, a heavier financial burden is placed on the poor compared to the rich. The relationship between the tax rate and the ability of the population to pay is inversely proportional. Such a scenario should only be observed where the poor have more chances of causing the adverse activity as opposed to the wealthy (Green 2008).
When addressing the issue of the increasing accumulation of greenhouse gases, such a tax could apply in a scenario where the activity in question is likely to be most conducted mostly by the poor. Such activities include charcoal burning and logging of trees. However, regressive taxes tend to be ineffective if it is, in fact, the wealthy who are engaging in the activity being controlled. Fossil sources of energy are major sources of the greenhouse gases. Big multinational companies are involved in most processes involved in their production. They produce in bulk and sell to smaller players in the sector. Regressive tax, in this case, will not be helpful. The reason behind this is that the tax regime will tend to encourage the production of more amounts of the controlled substance by the multinational company to further lower the marginal tax rate (Metcalf 2008). As a result, the tax regime will be viewed to encourage the emission of carbon dioxide.
A carbon tax is not imposed on actual emission of greenhouse gases. The reason behind this is that it would be difficult to quantify the gases reported. Most businesses may also not be willing to disclose the real amount of greenhouse gases that they emit into our atmosphere (Barclay 2012). As a result, many countries tend to tax based on carbon content. With information on the carbon content of products produced, governments can be able to estimate the environmental effect. The form of taxing has prompted players in the sector to produce low carbon fuels and products. It has also prompted the development of technologies that aim at reducing the energy requirement of systems (Elliot et al. 2010). The use of less energy, in this case, means that less carbon containing fuel will be burnt.
Consequently, lesser amounts of greenhouse gases will be released into the atmosphere. Other countries have resulted in the taxation of energy products and motor vehicles. Organisation for Economic Co-operation and Development member states endorse this form of taxing. Motor vehicles are seen to be the greatest sources of greenhouse gases (Green 2008). With a growing middle-income class across the globe, the number of motor vehicles is set to increase. As a result, the emission levels of greenhouse gasses will also be on the rise. The form of taxing was also found to encourage automobile manufacturers to embrace green technologies (Green 2008). As a result, there has been an increase in the production of hybrid and electric cars. Motor vehicles that emit lesser amounts of carbon dioxide are taxed less compared to heavy emitters.
Carbon taxes have been associated with a lot of successes. They have helped in the reduction of carbon dioxide emissions across the globe. However, there have been various harmful effects associated with the taxes levied by the government and other authorities. For example, there have been growing concerns that the imposition of carbon tax leads to the loss of jobs (Elliot et al. 2010). The situation is mainly contributed to by the increase in the cost of production. As a result, businesses must look for means to cut down on expenses. Downsizing is one of the most effective ways to achieve this. As a consequence, many people tend to lose their jobs. Such a situation is detrimental to the economy of many countries. In the process, many people depend on aid from the government.
Carbon taxes also tend to affect production activities in an adverse way. Through increased taxation, companies tend to reduce their production levels. As a result, fewer commodities will be available in the market. For example, carbon taxes have been seen to be one of the biggest hindrances to the production of motor vehicles. The reason behind this is that many governments across the globe have resulted to taxing them to cut down on greenhouse gases. With the taxation of fossil fuels, production activities have been further hindered (Strand 2013). Most manufacturers tend to use it as a source of energy. An increase in its prices means that many producers are discouraged from creating products. As a result of the shortcomings highlighted above, many developed countries have been observed to be shying away from carbon taxes. China, USA, and Russia have been seen to offer the most resistance to the move to impose carbon taxes (Strand 2013). They have continued to use carbon resources extensively.
Despite the increased popularity of carbon taxes across the world, the rate of accumulation of greenhouse gases has continued to rise. As a result, severe effects of climate change have continued to be felt across the globe (Jeffers 2010). Some environmentalists have expressed concern that carbon taxes have been compromised. Governments have viewed them as a source of revenue as opposed to a means to avert the harmful effects of the accumulation of greenhouse gases (Conefrey et al. 2013). For this reason, many ecologists feel that the objective has been lost. Many governments have also lost the motivation to reduce carbon dioxide emissions in their jurisdictions. They view carbon taxes as a hindrance to economic development. They feel that the revenue generated through the collection of the taxes cannot compensate for the income lost (Morozov 2012).
Significance of the Current Study
No research has also been in a position to demonstrate clearly to the world leaders the long-term impact of increasing carbon emissions. As a result, only the short-term effects are known to the global population. Few researchers have also sought to determine whether or not carbon taxes are still successful ventures capable of promoting environmental sustainability. The research was aimed at bridging this information gap. The researcher made efforts to establish the effectiveness of imposing carbon taxes in ensuring sustainability.
Research Questions
The researcher was guided by one major research question and four specific questions.
Major research question
How effective are carbon taxes in the promotion of environmental sustainability?
Specific research questions
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How is the social cost of carbon effective in enhancing environmental sustainability?
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How does the assessment of carbon leakage promote environmental sustainability?
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How feasible is the use of border adjustment tariffs or bans in promoting environmental sustainability?
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How effective is taxation of petroleum products in enhancing environmental sustainability?
Objectives of the Study
The study sought to achieve various targets. The goals were in line with the research questions. To this end, answering the research questions was adequately addressing the goals of the research undertaking. To begin with, the researcher set out to critically investigate the extent to which assessing the importance of social cost associated with carbon dioxide in ensuring environmental sustainability. The research also sought to analyse the effectiveness of assessing carbon leakage in promoting environmental sustainability. The extent to which the use of border adjustment tariffs is vital in promoting environmental sustainability was also critically evaluated. The researcher also sought to establish the efficacy associated with the taxation of petroleum products with the aim of promoting environmental sustainability.
Literature Review
Introduction
The chapter is used to present a review of the existing literature on carbon taxes. It is also used to assess the role played by the levies in enhancing sustainability. The information collected was presented in two forms. The two are theoretical and empirical review. The review of literature was both descriptive and analytical. The researcher sought to summarise the literature available on the subject. Efforts were also made to cite the existing information gaps on the issue.
Theoretical Review
The current study was based on environmental sustainability with regards to economic activities in the modern world. Environmental sustainability is one of the most popular economic theories around academic circles today. According to the theoretical framework, natural capital is vital in the promotion of economic growth and development (Swor & Canter 2011). The reason is that natural capital plays an important role as a source of raw materials for many manufacturing activities. As such, its continued existence should be ensured and safeguarded. Each and every member of the society should take charge of their activities. They should ensure that nature is protected and preserved for future generations.
The use of the natural capital should also be carried out in a responsible manner. Depletion of natural resources should, as a result, be avoided at all costs. Emission of greenhouse gases leads to the exhaustion of the ozone layer (Metcalf 2008). Carbon is the most produced greenhouse gas. The reason behind this is the extensive use of carbon containing products as energy sources across the globe. It is evident that energy is an important catalyst in economic development. However, continued use of fossil fuels for the purpose of generating energy is associated with deadly consequences. If the trend does not change, a lot of harmful effects will be felt in the long-term. Deterioration of health is expected to be one of the most serious problems associated with the emission of the greenhouse gases (Metcalf 2008). Governments around the world should encourage sustainable growth to avoid such situations. Striking a balance between economic development and environmental concerns is the best way to achieve this. The application of the theory was used to assess the effectiveness of carbon taxes in ensuring environmental sustainability.
Empirical Review
The concept of a carbon tax was first proposed in 1973 by David Gordon (Elliot et al. 2010). Since then, countries gradually adopted the idea in a bid to reduce the accumulation of greenhouse gases. Any nation that wishes to impose the tax on market activities has to put in place the necessary legal frameworks to guide the implementation process. Rates also have to be formulated. The reason behind this is to ensure that taxation is done in a systematic manner. At the same time, governments can match rates with the level of pollution caused by a particular organisation. A carbon tax is also an externality that affects third parties. For this reason, it is considered to be a Pigouvian tax (Conefrey, Fitz & Malaguzzi 2007). It is seen to impose charges based on the marginal damage to the third party. In this case, the third party is the environment. The tax is levied to reduce the destruction of the environment through the continued production of greenhouse gases.
Importance of Assessing the Social Cost of Carbon in Enhancing Environmental Sustainability
It was found that the rate of carbon taxes can be estimated based on the social cost of a given product (Baylis & Fullerton 2013). Usually, assessments are made based on the marginal cost of an extra ton of carbon dioxide gas released into the atmosphere at any particular time. The evaluation of social carbon cost (SCC) starts with the estimation of the gass residence time in the atmosphere (Luo & Tang 2014). Its impact on climate change should also be assessed. As a result, the effects of every ton of carbon emitted into the environment can be estimated.
The use of SCC is important since business entities are charged rates that correspond to the negative effects their carbon emissions cause. Subsequently, efforts to deal with pollution effects are funded. In economic terms, a discount rate must be factored in when assessing the impact of the greenhouse gas over an extended duration of time (Howarth et al. 2014). It helps clear errors that may result from variations in time. In the past, SCC estimates have been viewed to be an important tool when it comes to the setting of a carbon tax. By establishing the SCC values, governments across the world are in a position to assess the effect of greenhouse gas emission into the atmosphere. As a result, they can set rates that match the climate change associated with the discharge. In instances where the emission of carbon dioxide gas results to adverse climatic effects, higher carbon tax rates will be set (Howarth et al. 2014).
Various scholars and economists are opposed to the use of SCC approach. They are of the opinion that the method is affected by variations in the market. They feel that disparities make SCC values unstable (Das 2011). As such, it is an erroneous method of basing carbon tax for any particular country. There are also concerns that the calculation aimed at establishing the magnitude of pollution emanating from carbon dioxide is estimated based on the mass of the gas. As a result, scientists who are involved in undertaking the assessment tend to measure the mass of the carbon dioxide molecules that are emitted into the atmosphere. The results of the evaluation give rise to a quantity of the gas referred to as a ton. For this reason, governments estimate the amount of carbon dioxide to be taxed based on the weight. Other scientists tend only to calculate the population of carbon atoms within an area where pollution is known to occur. Here, they calculate carbon atoms only. They leave out the oxygen atoms present (Repetto 2013). With the count, they can be able to estimate the level of pollution in that particular area. One ton of carbon is equivalent to four of carbon dioxide.
Scientists across the world have continued to debate on the effectiveness of using SCC for the purpose of determining carbon tax rates. Many are particularly concerned about the extensive standard deviation between actual and estimated values of the amount of carbon emitted into the atmosphere by a business at any particular time. The disparity is as a result of failure by scientists across the world to agree on various aspects associated with carbon emission and climate change (Nishida & Hua 2011). One of the most controversial issues is on the amount of carbon that can result in climate change. As a result, scientists are seen to work on mere assumptions. As a consequence, they are not able to convince many governments on the importance of setting the recommended carbon tax rates (Jeffers 2010). Governments and stakeholders in the energy sector must be convinced of the seriousness of carbon emissions on the environment before they can formulate policies on the same. The reason behind this is that carbon taxes are seen to impact negatively on economic activities.
Countries also tend to offer varying discount rates on carbon emissions (Yakao 2014). As a result, inconsistencies are a common phenomenon while attempting to compute SCC. The result is that some countries will tend to levy more taxes on the activity than others. Investors pay keen attention to such policies before moving into a country (Deane 2011). Nations that charge more for every ton of carbon emitted into the atmosphere will tend to discourage new investments. However, such a country is considered to have acted responsibility towards promoting environmental sustainability. However, other countries tend to give more attention to economic development as compared to durability. They tend to charge relatively lower taxes on the emission of carbon into the atmosphere. As a result, many companies are willing to invest in their jurisdiction (Yakao 2014). The issue of carbon taxes has not only been seen to have an impact on the new investments but also the existing ones. High carbon tax rates increase on the operation costs of the industries that are already established since they target all areas of the economy. If the charges are extremely high, it may be difficult for businesses to make profits, which make them move to other countries with fewer regulations (Deane 2011).
Variations in the calculation of SCC values have resulted in unfair competition for investments among countries (Baylis & Fullerton 2013). To avoid a situation where the estimation of SCC may disadvantage one country, the evaluation process should be harmonised. As a result, a level playing field is created which discourages unethical practices among countries. At the same time, the objective of carrying out the assessment is not lost. The sole purpose of developing the evaluation method was to reduce the effect of greenhouse gases on climate change. It was also to be an important tool in the determination of carbon tax rates. A standard formula was adopted to guide the process. As a result, the assessment criterion for SCC was initially aimed to be standardised.
However, the introduction of different discounting rates led to deviations (Wang & Zhou 2014). The situation made investment prospects in some countries to be viewed as less attractive compared to those in others. The outcome has been countries attempting to introduce measures that tend to lower their carbon taxes. The situation is evident even in the most developed countries in the world, such as the USA, Russia, as well as China. Today, there are ongoing efforts to standardise once again the assessment of SCC. With this, better results in terms of promoting environmental sustainability are set to be achieved. The reason behind
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