How Carbon Tax Works

Will There be a National Carbon Tax?

A Representative from Michigan proposed a carbon tax in 2007.
A Representative from Michigan proposed a carbon tax in 2007.
© Photographer: Michael McCloskey | Agency: Dreamstime

Few legislators around the world consider national carbon taxes as practical successors for the Kyoto Protocol, a multinational carbon market. Kyoto expires in 2012, but its example, as well as that of voluntary cap-and-trade programs like the Chicago Climate Exchange (CCX), has made capped programs the norm. The United States even has a successful cap-and-trade program on sulfur dioxide emissions.

Most politicians believe a tax on carbon would anger voters already upset about high energy and gas prices. If lawmakers favor any sort of energy legislation, they tend to prefer cap-and-trade schemes -- unlike the broader carbon tax, cap-and-trade schemes allow for specific industry exemptions.

Representative John D. Dingell, D-Mich., chairman of the House Energy and Commerce Committee, has, however, proposed a tax on carbon. Although he expects the bill to be unpopular, he wants to hear what people think of such a measure.

President Bill Clinton also proposed a tax on the heat content of fuels. Economists believed his "Btu Tax" would burden consumers and hurt the economy. It passed in the House but was voted down in the Senate. The New Zealand government scrapped plans for a carbon tax in 2005, believing that the estimated 6 percent proposed addition to electric bills was too much.

Despite its lack of political support, carbon tax appeals to economists, environmentalists and even some businesses that like its natural fairness. Many people are certain on one point, however. Individuals, businesses and utilities need regulated incentives to increase energy efficiency and switch to alternative fuels. Both cap-and-trade schemes and carbon taxes would create the incentives needed for change.

To learn more about carbon tax, cap-and-trade schemes, carbon offsets and global warming, check out the links below.

Related HowStuffWorks Articles

More Great Links


  • " Energy/carbon Taxes." U.S. Environmental Protection Agency.!OpenDocument
  • Andrews, Edmund L. "Counting on Failure, Energy Chairman Floats Carbon Tax." The New York Times. July 7, 2007.
  • "At-a-glance: The Stern Review." BBC News. October 30, 2006.
  • "Boulder voters pass first energy tax in the nation." City of Boulder, Colorado. November 8, 2006.
  • Brethour, Patrick. "Guess who (quietly) likes Quebec's carbon tax?" June 18, 2006.
  • Brouillard, Carolyn and Sarah Van Pelt. "A Community Takes Charge: Boulder's Carbon Tax." February, 2007.
  • Carbon Tax Center.
  • "City residents vote to tax selves for carbon use." MSNBC. November 10, 2006.
  • "Doffing the Cap." The Economist. June 14, 2007.
  • Kebede, Rebekah. "Americans would hit brakes if gas hits $3.50: poll." Reuters. July 18, 2007.
  • Kelley, Kate. "City Approves 'Carbon Tax' in Effort to Reduce Gas Emissions." The New York Times. November 18, 2006.
  • Mufson, Steven. "Democrats Lack Unity in House over Energy Bill." The Washington Post. August 1, 2007.
  • Myer, Rod. "Carbon tax too costly, says NZ." The Age. December 30, 2005.
  • Osborn, Gareth W. "Can eco-taxation be effective in reducing carbon emissions?"
  • "Quebec to collect nation's 1st carbon tax." CBC News. June 7, 2007. ­