Navigating The Complexities In Carbon Taxation And Route To Circumvent The Trickle Down Consumption Impact

The idea of carbon taxation finds its emergence in late 1960s when Arthur little, Martin Weitzman, and Alfred Kahn recognized the potential economic impact of pricing the carbon emissions for incentivizing renewable energy consumption and improving energy efficiency. At first, the Canadian Province of British Columbia introduced Carbon tax of $5 per tonne of carbon equivalent emission in 1989 until the idea spread across the globe.

In recent times, owing to the severe shifts in worldwide weather patterns from witnessing the unprecedented heavy rainfall in the deserted middle east to the record temperature hikes in Europe and Britain, the subject of climate change seeks foremost attention in diverse perspectives. Carbon Taxation is seen as one of the potential aspects to forestall the climate change by restricting the environment unfriendly activities.  

 It seems an ice cake to tax the manufacturing industries, production plants and processing units to disincentivize the use of carbon emitting energy resources as an environmental protection measure. However, the strategy of carbon taxation has not served the intended purpose efficiently by overshadowing the following aspects.

The carbon tax is usually passed on to the consumers by the manufacturers in the form of price increment to the respective goods and services. This leads to the consumption injustice by restricting the demand of the particular goods for the middle and low income class, whose consumption is more income-sensitive than the elite class. On the other hand, the skyrocketed fixed and maintenance cost of renewable energy sources is not affordable for many small and medium scale manufacturing units. This cost would also be accumulated in the prices of final goods, making them barely accessible for the significant proportion of the consumers and reducing the size of consumer market. Therefore, pertaining to the limited transformative capacity, it appears more convenient for the producers to stick to the utilization of the non renewable energy resources and capture the low and middle income consumers by shifting the cost increments caused by the carbon taxation to them in the form of final price. In both the scenarios, middle and low income consumer is at the receiving end in the form of inflation and consumption deprivation.

Besides the behavioral impact on consumption, there are some technical limitations associated with taxing the carbon emitting vehicles and industries. For instance, there have been concerns on defining the criteria of carbon taxation by the environmental experts that is that a correct approach to tax the carbon merely on the basis of per ton carbon emission regardless of its potential impact in different forms of emission? It is because the emitted carbon possesses different forms including carbon dioxide, methane and other fluorinated gases depending upon the type of fuel and method of combustion. The impact intensity of these multiple forms of carbon vary in polluting the environment. So, before implementing the carbon tax, it poses a logical constraint for the governments to categorize and monitor the industries and transportation services on the basis of the form of fuel and the combustion process being utilized to adopt wider and fair approach of taxation. However, it becomes challenging for the governments to adopt such in-depth approach, considering the associated expenditures. 

Contrary to the carbon taxation, the governments should subsidize the renewable energy to make it equivalent or cheaper than non-renewable sources. It will incentivize the producers to shift to the renewable means of energy without creating cost push inflation for the consumers. In this way, the possible reduction in the consumption of essential goods can be avoided to ensure the social welfare. Secondly, the governments should introduce environment credit shields for promoting the utilization of clean energy and categorize them according to the business scales in a way that higher scale businesses will get more government facilities. The governments should link the availing of environment credit shields with minimum tariffs on the imports of renewable energy machines and ease of providing letter of credits to the businesses.  It will also incentivize the businesses to document the true size of their businesses to avail maximum government facilities which will ultimately result in broadening the tax base. 

Conclusively, the governments should analyze if the carbon tax is an environmental tax or a fiscal tax to finance the their expenditures at the cost of affecting the living standards of the middle and the low income class and adopt the measures mentioned above to promote clean environment.

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