6. A Carbon tax wouldn’t solve environmental issues and it would worsen inequality.
Islam 1/23 (Roumeen, is an Economic Advisor for the Infrastructure Global Practice, which covers digital development, energy and extractives, transport and logistics, and disruptive technologies. 01-19-2023 “What a carbon tax can do and why it cannot do it all” https://blogs.worldbank.org/energy/what-carbon-tax-can-do-and-why-it-cannot-do-it-all#:~:text=For%20example%2C%20a%20carbon%20tax,their%20consumption%20basket%20more%20expensive.)//BH-NB//
There are good reasons why governments may not want to use carbon taxes, and one of them relates to their welfare impacts. For example, a carbon tax on fossil fuels is often regressive in its impact- hurting poorer people relatively more than richer ones. Even when it might be progressive, poorer people still suffer a welfare loss when prices rise, making their consumption basket more expensive. Devising transfers to compensate them for this loss is not a simple matter. Compensation systems may not be well developed, and it may be difficult to identify those hurt or to get funds to them. Thus, even if governments impose a tax, they may still balk at levying a carbon tax high enough to reduce emissions to the extent they desire. Another reason that governments may hesitate is that adopting new taxes can be politically difficult because there are entrenched business interests that would lose.