December 19, 2023

Impact of Carbon Tax on Our Lives

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  • In the previous issue, Nomura Research Institute (NRI) discussed carbon pricing, which is being debated globally as a countermeasure to global warming, and in this issue, we will discuss a carbon tax, which is a part of carbon pricing. In this issue, NRI will discuss a carbon tax, which is one of the carbon pricing measures. Carbon pricing is a system that sets a price on greenhouse gases (GHG) such as carbon dioxide (CO2). A price is set to tax emissions or to buy or sell emission reductions.

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    What is a carbon tax?

    A carbon tax is a system of taxation on the emission of CO2 and other greenhouse gases. In other words, it is a system whereby businesses and individuals are charged based on the amount of greenhouse gases produced when we use energy or drive a car. The reason we need a carbon tax is to prevent climate change from becoming more severe. Most of the energy we use in our daily lives comes from burning fossil fuels (coal, oil, and natural gas). However, the use of these fossil fuels releases large amounts of greenhouse gases into the atmosphere, causing global warming. This has resulted in serious impacts such as abnormal weather, rising sea levels, and reduced biodiversity. By charging for the amount of gases emitted, companies and individuals can be encouraged to change their attitudes toward reducing their environmental impact, reduce their emissions, and accelerate the shift to sustainable energy.

    Countries Introducing Carbon Taxes

    An increasing number of countries have introduced carbon taxes. Finland was the first country in the world to introduce a carbon tax in 1990. The number of countries that have introduced carbon taxes is increasing, especially in European countries such as Norway, Sweden, Denmark, the Netherlands, and Switzerland. These countries are using the revenue from carbon taxes, which are charged according to emissions, to reduce greenhouse gas emissions through renewable energy and climate change countermeasures. The price of carbon in countries with carbon taxes varies from country to country and region to region. The price of carbon is set by the government and relevant laws, and is usually levied per unit of carbon dioxide or carbon dioxide equivalent greenhouse gas emissions. Finland, the earliest country to introduce a carbon tax, levies a tax of about US$85 per metric ton of CO21 on gasoline and diesel used in transportation. Sweden and Switzerland have the highest prices in Europe, about US$130.

    Carbon Tax Challenges

    IMAGE from Pexels

    Carbon taxes are being touted as a new approach to climate change. By putting a price on economic activity that considers its environmental impact, it has the potential to promote a shift to sustainable energy and mitigate climate change. On the other hand, several challenges exist with carbon taxes. The biggest challenge is the issue of social equity. Because it taxes emissions from energy use, it can place a burden on economically vulnerable groups such as low-income earners and small businesses. Carbon taxes are generally paid by the emitters, businesses, and industrial sectors, but in some cases the burden of the carbon tax is passed on to consumers. As emitters bear the carbon tax burden, their production costs increase, which may be reflected in the prices of products and services. This may result in higher prices for products and services, which may cause consumers to pay higher prices. There are also problems with some industries and countries delaying the introduction of a carbon tax to remain competitive. Furthermore, a carbon tax alone will not completely solve climate change. Along with a carbon tax, reducing greenhouse gas emissions will require a multifaceted approach that includes the diffusion of renewable energy, technological innovation, and changes in consumer behavior.

    NRI Manila supports companies in the area of sustainability and ESG through our sustainability consultation services. We support companies in developing their sustainability strategies in terms of corporate culture, structure, assessment and reporting in order to achieve a more sustainable future.

    About the contributor

    IMAGE from Jon Bernard Dumdum

    Jonas Marie Dumdum is an ISC consultant for Nomura Research Institute Singapore – Manila Branch. He is also a climate reality leader and sustainability science and strategy advocate who has worked on projects that tackled various environmental issues such as climate change and sustainable energy.

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