Carbon taxes are necessary to meeting Sustainable Development Goals.

Without major and urgent efforts to slow accumulation of carbon dioxide (CO 2) and other greenhouse gases in the atmosphere, future generations will inherit a much warmer planet with risks of dangerous climate events, higher sea levels, and destruction of the natural world.

The international community’s response is grounded in the 2015 Paris Agreement, which has the key objective of limiting future global warming to between 1.5 and 2˚C above pre-industrial levels. One hundred ninety parties submitted climate strategies for this agreement, almost all of which include mitigation commitments. A typical pledge among advanced economies is to reduce emissions by 20–40 percent by 2030 relative to emissions in a baseline year. These pledges are voluntary, but participating parties are required to submit updated pledges every five years starting in 2020 and to routinely report progress on implementing them.

For this international response to work, policymakers need carefully crafted measures that effectively meet their mitigation commitments while at the same time limiting the burdens on their countries’ economies and navigating the political obstacles to implementation. Even if successfully implemented, however, current country pledges would cut global emissions by only about one-third of the amount required to meet climate stabilization goals. Innovative mechanisms are therefore needed to scale up mitigation efforts at the international level.

The case for carbon taxation

Carbon taxes are charges on the carbon content of fossil fuels. Their principal rationale is that they are generally an effective tool for meeting domestic emission mitigation commitments. Because these taxes increase the prices of fossil fuels, electricity, and general consumer products and lower prices for fuel producers, they promote switching to lower-carbon fuels in power generation, conserving on energy use, and shifting to cleaner vehicles, among other things. A tax of, say, $35 a ton on CO2 emissions in 2030 would typically increase prices for coal, electricity, and gasoline by about 100, 25, and 10 percent, respectively. Carbon taxes also provide a clear incentive for redirecting energy investment toward low-carbon technologies like renewable power plants.