17 Carbon Tax Pros and Cons Fully Explained

Carbon tax pros and cons are; Emissions-Reduction, Reduces Use of Fossil Fuels, Subsidizes Sustainable Alternatives, Revenue Generation/Economic Growth, Innovation and Positive Change, Energy-Efficient Consumer Behavior, Definite, Flexible and Predictable, Encourages Environmental Justice (pros/advantages); Valuation Difficulties, Diversion from More-Effective Measures, Relocation of Economic Operations, Low Feasibility, Implementation Delay, Devalues Natural Resources, Administrative Expenses, and Unsustainable Economy(cons/disadvantages).

This article discusses the carbon tax pros and cons, as outlined below;

-Eight (8) Pros/Advantages of Carbon Tax

-Nine (9) Cons / Disadvantages of Carbon Tax Systems








Eight (8) Pros/Advantages of Carbon Tax

1). Carbon Tax Reduces Emissions

The most prominent advantage of carbon tax is emission reduction.

When implemented, a carbon tax policy protects the environment by causing firms to produce less gaseous emissions [1]. Basically, this policy assigns a social cost to atmospheric carbon and address excessive carbon production, so as to achieve sustainability in social, economic and environmental sectors.

The outcome of carbon tax implementation is reduction of greenhouse emission and improvement in air quality, through encouragement of individuals and organizations to cut down on carbon emissions.


2). Reduces the Use of Fossil Fuels

One of the objectives of carbon tax implementation is to address the issue of global warming.

The dependence of the global economy on fossil fuels is a major reason for the increasing levels of atmospheric carbon and the threat of global warming [7].

By assigning a cost to carbon emissions, carbon tax systems can reduce the consumption rate for fossil fuels. Conservative consumption becomes a necessity when the side effects of fossil fuel consumption are accounted for. This is what carbon tax systems are designed to achieve.


3). Carbon Tax Policy can Help Subsidize Sustainable Alternatives

Just as they reduce the level of dependence on, and the rate of consumption of fossil fuels; carbon tax systems encourage the use and development of sustainable alternatives.

These alternatives may occur in the form of green, renewable energy options such as solar and wind.

Aside raising awareness on the importance of clean and sustainable alternatives, the carbon tax system can also raise funds which may be used to support research and development efforts.

Areas in which such efforts may be applied include green manufacturing, for products like biodegradable plastics, environmental remediation, sustainable agricultural practices like soil conservation, electric vehicles and renewable energy technology. These developments will help in speeding-up the transition to sustainability and clean energy.

Carbon Tax Systems Support R & D for Sustainable Alternatives (Credit: ENERGY.GOV 2013)
Carbon Tax Systems Support R & D for Sustainable Alternatives (Credit: ENERGY.GOV 2013)


4). Revenue Generation and Economic Growth as Carbon Tax Pros

A carbon tax policy can benefit the economy, especially when it is implemented alongside complementary policies [4].

At the local and regional levels, this system can lead to higher tax revenue, in the form of levied returns from organizations which use fossil fuels and emit gaseous carbon into the atmosphere.

The revenue realized can be invested into infrastructural and remedial projects, which can further improve the economy.


5). Carbon Tax Encourages Innovation and Positive Change

As implied already, carbon tax systems encourage innovation.

These systems can be used as an effective tool to accelerate the measures which are needed in order for sustainable development to be achieved.

When carbon emissions are priced, the use of fossil fuels becomes less viable, and sustainable innovations become competitive. A scenario such as this leads to a rise in interest, investment and efforts in innovative projects to find economically and socially sustainable alternatives.

Innovation as a result of carbon tax policies will mostly involve electricity generation, agriculture, commerce and manufacturing.  


6). Energy-Efficient Consumer Behavior as one of the Carbon Tax Pros

A potential effect of carbon tax is energy conservation [3]. This may impact the commercial sector, and is one of the most beneficial advantages of carbon tax.

Since carbon taxes tend to increase the cost of fossil fuels [2], consumers will likely become more conscious of the effects of their habits on the environment, and the cost of living.

This, in addition to the potential increase in development of sustainable products, will alter the consumer behavior toward a more energy-efficient, conservative and sustainable pattern.  Such changes can affect overall lifestyle, reduce the prevalence of climate change-related illnesses, and improve public health.


7). A Carbon Tax System is Definite, Flexible and Predictable

A carbon system has some positive essential attributes that can be seen as advantages.

One of these is the fact that carbon tax policies usually assign a definite price to carbon emissions, in a given region and over a given period of time. This makes the system definite, so that it can be used as an effective tool to analyze the effect of social measures on environmental safety.

Different fossil fuels are usually assigned different carbon prices based on their carbon content. This also makes the carbon tax system to be definite, as it allocates its values based on actual effects and conditions.

Carbon prices can be adjusted to suit economic and social conditions at any given time. This is an attribute of flexibility, meaning that the carbon tax system can be made to work in unison with other changing aspects of the society.

Because it is a definite and flexible system, the outcome of carbon tax policies can be fairly predicted, by putting all the relevant factors into account, such as fuel type and economic conditions. Through such predictions, governments can plan ahead with regards to the necessary decisions to be made.


8). Carbon Tax Encourages Environmental Justice

Carbon tax systems ensure that the social cost of carbon emissions is paid first by the producers of atmospheric carbon.

This arrangement ensures that a degree of environmental justice is served, as the effects of environmental degradation are no longer solely experienced by the vulnerable sector of the human population.  

It also encourages the socially-advantaged to take steps to reduce environmental pollution.


Nine (9) Cons / Disadvantages of Carbon Tax Systems

1). Carbon Tax Agencies may experience Valuation Difficulties

While it is the goal of carbon tax systems to allocate a social cost to carbon emissions, it is very unlikely that the valuation of carbon prices can be accurate. This is one of the most common disadvantages of carbon tax policies.

The main reason for this is the fact that there is no fixed or universal carbon price. Since atmospheric carbon is itself not a commercial commodity, it is difficult to estimate and assign a definite; accurate value to carbon emissions.

What this implies is that the carbon tax system is flawed in terms of its accuracy and reliability.

At the same time, carbon policies are not always able to ensure that the cost of carbon emissions is paid solely by the producers of these emissions. Rather, the cost is shared throughout the economic sector, due to the effect of rising energy prices.

To observe the effects of these inconsistencies, the price of carbon emissions in different countries can be seen here. Across these countries; there is a wide variation in the value of carbon, which reflects a flaw in the pricing system. This flaw compromises the overall effectiveness of the carbon tax system.


2). May be a Diversion from More-Effective Measures

According to some assessments, carbon tax policies are a diversion (or distraction) from more important and effective measures that can be taken to protect the environment and address global warming.

Such measures include green energy development, smart housing, electric vehicle technology, and environmental remediation. These are more practical and measurable than carbon tax.

Carbon Tax may be a Diversion from Alternative Measures like Electric Vehicle Technology(Credit: Tennen-Gas 2009 .CC BY-SA 3.0.)
Carbon Tax may be a Diversion from Alternative Measures like Electric Vehicle Technology(Credit: Tennen-Gas 2009 .CC BY-SA 3.0.) 


3). Carbon Tax may only Shift Economic Operations to Other Regions

A full-scale enforcement of carbon tax policy can force companies to take drastic steps to preserve the viability of their business.

One of such steps is movement to countries or regions with lower or no carbon tax. Because carbon tax is not uniform across the world, some countries have lower tax rates, and some countries have no tax rate at all.

Understandably, stiff carbon tax policies with high cost can shift many economic and industrial populations to other parts of the world.

The effects of such economic migration include potential recession, global economic imbalance, and intensive pollution in parts of the world where these businesses have migrated.

Carbon tax policies may also discourage potential investors from funding projects in sectors that produce atmospheric carbon, while shifting the focus to energy-efficient technology [5]. Since such projects constitute a significant aspect of the global economy, a lack of funding can lead to economic meltdown.


4). Dependence on Fossil Fuels as one of the Carbon Tax Cons

One of the objectives of the carbon tax system is to cut down on fossil fuel consumption [6], and to establish energy conservation and efficiency.

This objective is challenged by the fact that fossil fuels are the most relied-upon source of energy in the world [8]. Although much effort is being made to develop reliable alternatives, these alternatives are not yet able to replace fossil fuels in any capacity.

The fact that fossil fuels are still essential to energy production and electricity generation, implies that the feasibility and sustainability of a carbon tax system is questionable.


5). Potential Delay of Full Implementation as one of the Carbon Tax Cons

There is a multitude of factors to consider when implementing or enforcing carbon tax. These factors affect various sectors of commerce, industry, and public wellbeing.

As a result, the full implementation of carbon taxes can be a long process spanning several years.

Causes of the delay in implementation include social and political reviews, cooperation and correspondence between the public and private sectors, and issues of social acceptability.

Because of the potential ripple effect of carbon tax on the economy, it is unlikely to gain acceptance by the society. Amendments and legislative action to align the carbon tax policy go societal conditions can cause further delay.


6). Devalues Natural Resources

Implementation of carbon tax policy can reduce the net value of carbon-producing natural resources.

This is because such policy assigns a financial liability to the use of these resources, which include fossil fuels like coal and petroleum. They become less lucrative for the market, and may therefore lose their appeal.

In the event that carbon tax causes more focus to shift to alternative energy sources and clean technology, these carbon-producing resources may become less relevant and valuable. This is a problem, because fossil fuels are not used in the energy sector alone, but also in manufacturing of plastics and other materials.


7). Administrative Expenses

Carbon tax policies are usually accompanied by administrative costs.

This is basically the cost of enforcing and managing these policies. Administrative costs become a prominent factor when we consider the fact that there are definite goals and deadlines which governments wish to achieve in cutting their carbon emissions.

The problem of high administrative cost can divert resources and efforts from the primary objective of reducing atmospheric carbon concentration.

Administrative costs can be looked at from the perspective of the carbon-producing companies as well. The effort to measure and control their emissions can reduce overall productivity. Increase in the cost of products (as a result of carbon tax) can also reduce customer patronage for these companies.


8). May Create Unsustainable Economic Conditions

There are various ways in which carbon tax can result in an unsustainable economy.

One of these is the rising cost of production. When carbon tax is implemented, production is likely to become more expensive, since it depends on energy.

Another way that this may happen is through the creation of unbalanced global economic exchange. Because carbon prices vary across different countries, the exchange (import and export) of commodities between these countries may become unbalanced and unsustainable when carbon prices are put to effect.

Carbon tax systems tend to have a regressive effect on the economy. The reason for this is that these taxes are imposed on consumers. Given that all goods and services are likely to be affected, the lower to middle-income class may be severely affected.  This class constitutes the bulk of workers in most sectors of the economy.

Lastly, businesses may become unsustainable provided high carbon prices conflict with the prospect of production and profit. Loss of businesses implies unemployment, which is bad for the economy.


9). The Practical Effectiveness of a Carbon Tax Policy may be Doubtful

There are reasons to doubt the effectiveness of carbon tax policies in practical situations and over a long period of time.

The main reason is that carbon tax implementation may not cause a significant reduction of carbon emissions over time. As long as fossil fuels remain highly needed, the prospect of addressing their environmental side-effects will remain small.

Companies might also adopt ways to avoid these taxes as well, and continuous reforms may reduce the usefulness of the policy to its minimum.

Lastly, consumer behavior may not be affected by carbon taxes. While the prices of goods and services may increase, the level of dependence of the public on these goods and policies will ultimately determine their commercial performance. Many products and services related to fossil fuels are still essential to the public, meaning that a carbon tax system may not reduce the demand for carbon-producing services.



Carbon Tax Pros and Cons are listed as follows;

Advantages of carbon tax;

  1. Reduces Emissions
  2. Reduces Use of Fossil Fuels
  3. Subsidizes Sustainable Alternatives
  4. Revenue Generation/Economic Growth
  5. Innovation and Positive Change
  6. Energy-Efficient Consumer Behavior
  7. Definite, Flexible and Predictable
  8. Encourages Environmental Justice


Disadvantages of carbon tax;

  1. Valuation Difficulties
  2. Diversion from More-Effective Measures
  3. Relocation of Economic Operations
  4. Low Feasibility
  5. Implementation Delay
  6. Devalues Natural Resources
  7. Administrative Expenses
  8. Unsustainable Economy
  9. Effectiveness is Doubtful


An effective way to apply a carbon tax system will involve active measures to develop and implement alternatives to fossil fuels while the policy is in place. In the absence of such an approach, carbon tax systems may not be very effective.



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2). Hasudungan, H. W. V. (2018). “THE IMPACTS OF IMPLEMENTING THE CARBON TAX ON FOSSIL FUELS: A HYBRID CGE ANALYSIS FOR INDONESIA.” Available at: https://doi.org/10.29017/SCOG.40.2.44. (Accessed 9 June 2022).

3). Litman, G. (2009). “Evaluating Carbon Taxes as an Energy Conservation and Emission Reduction Strategy.” Transportation Research Record Journal of the Transportation Research Board 2139(2139):125-132. Available at: https://doi.org/10.3141/2139-15. (Accessed 9 June 2022).

4). Lu, C.; Tong, Q.; Liu, X. (2010). “The impacts of carbon tax and complementary policies on Chinese economy.” Energy Policy 38(11):7278-7285. Available at: https://doi.org/10.1016/j.enpol.2010.07.055. (Accessed 9 June 2022).

5). Mukhtarov, S. (2021). “The Impact of Carbon Pricing On International Competitiveness In The Case of Azerbaijan”. Available at: https://doi.org/10.21203/rs.3.rs-1015971/v1. (Accessed 9 June 2022).

6). Nar, M. (2020). “The Role of Carbon Taxes in Reducing Greenhouse Gas Emissions.” International Journal of Energy Economics and Policy 11(1):117-125. Available at: https://doi.org/10.32479/ijeep.10721. (Accessed 9 June 2022).

7). Nwosu, C. N.; Obot, E. P.; Onuu, M. U.; Ekwueme, A. (2019). “Fossil Fuel Combustion and Global Warming Abatement using Nanomaterials and Associated Technologies.” Available at: https://www.researchgate.net/publication/335976340_Fossil_Fuel_Combustion_and_Global_Warming_Abatement_using_Nanomaterials_and_Associated_Technologies. (Accessed 9 June 2022).

8). Zhukovskiy, Y. L.; Batueva, D.; Buldysko, A.; Gil, B.; Starshaya, V. (2021). “Fossil Energy in the Framework of Sustainable Development: Analysis of Prospects and Development of Forecast Scenarios.” Energies 14(17):5268. Available at: https://doi.org/10.3390/en14175268. (Accessed 9 June 2022).

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