In 2016, 197 countries agreed to pursue all necessary steps to reduce global warming to less than 2°C, if possible 1.5°C. However, no detailed rules and guidelines were set in order to reach this goal. Thus, the matter of carbon dioxide taxation to reduce emissions in order to fulfil the Paris agreement is still being discussed globally. In Katowice in 2019, countries failed to reach an agreement to implement a global carbon dioxide taxation system, so countless countries have developed their own system. Opinions regarding the matter of this tax vary across the globe, with some countries arguing that this tool is not required to reduce emissions sufficiently and that this would harm national industries and lead to the loss of thousands of jobs. Others argue that the tax is vital to a successful climate policy. A carbon dioxide tax – generally speaking – allows the development of industries with little carbon dioxide production, as these industries have reduced costs in comparison to those industries that release huge amounts of carbon dioxide. Thus, the industries with high carbon dioxide release are made unprofitable and therefore fail while those industries with little carbon dioxide release fill the void left behind, leading to economic prosperity for such industries and therefore leading to a decrease on carbon dioxide production. Environmentally unfriendly companies are therefore encouraged to pursue policies to reduce their carbon dioxide emissions to reduce costs. However, this is only the case if the tax levied is higher than the profits produced by environmentally unfriendly companies, as otherwise these companies can still survive and generate profits, so there is no reason to change company policies, especially as the development away from emission production requires large sums of money. Also, the carbon dioxide tax cannot limit the total amount of carbon dioxide produced, as there is no regulatory power of the tax.
In Sweden, a carbon dioxide tax passed parliament in 1991. In the Scandinavian country, all fossil fuels (petrol, diesel and coal) are taxed according to the amount of carbon dioxide they release. The government hereby only levies the tax on the polluter, so the company that burns the fossil fuels. In 1991 the price for a tonne of CO2 produced by a household was 24 Euros, while a tonne of CO2 released by industry was 6 Euros. The price has been, since 1991, gradually been increased to 137 Euros per tonne of carbon dioxide for both the domestic and industrial sector. This has resulted in a decrease of fossil fuel consumption in Sweden by 25 %. Additionally, the use of biomass for heating has increased from 25% to 70% in the same time frame. Contrary to popular belief, this reduction did not cause a decline in GDP. As a matter of fact, Sweden has increased its GDP by almost 80% since 1991 despite the massive decline in carbon dioxide production. However, the CO2 tax cannot limit the total amount of CO2 produced.
In India, a similar tax was introduced that was levied on coal. Approximately 5 Euros are levied on each tonne of coal imported or produced in 2020. This is a great increase from the 0.63 Euros levied on each tonne of coal when the tax was introduced in 2010. However, the coal consumption in India has increased from 684 million tonnes in 2010 to 982 million tonnes in 2018, showing that the tax is not causing a fundamental change in coal consumption and therefore no reduction in carbon dioxide production. Also, as the tax is only levied on coal, other fossil fuels that produce carbon dioxide as well are not affected by the tax.
In the European Union as well as other countries (including New Zealand and China) an emission trading system has been set up to limit the total amount of CO2 produced. In this system, governments create a certain number of certificates that allow holders to produce CO2. Companies are often allocated a certain number of certificates and then have to buy additional certificates if they wish to produce more CO2. Companies that do not require their certificates may sell them. This system intends to encourage companies to reduce emissions to reduce costs. However, the allocation of such certificates as well as the high numbers of certificates leading to a low price often prevent this method from being effective, as companies are not incentivised to reduce emission, as the company remain profitable due to low prices for certificates. This is an alternative to a tax that allows the control of the total amount of carbon dioxide produced in the country.
Many other countries refuse to implement a carbon dioxide tax. For instance, the United States administration has said that it will not implement a nation-wide carbon dioxide tax, as the government doubts that climate change is caused by humans. In Australia, a carbon dioxide tax passed in 2010 that had caused a decrease of carbon dioxide production by 17 million tonnes was revoked by a successor government in 2014 and no efforts have been made to reinstall the system. The Emission Reduction Fund that replaced the tax will - according to scientists – not suffice to reduce emissions substantially, so that Australia’s climate goals will not be reached.