Carbon Taxing : Moving Towards An Efficient Economy

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CARBON TAXING: MOVING TOWARDS AN EFFICIENT ECONOMY INTRODUCTION With the rise in pollution levels and the adverse effects of climate change around the world, such as rise in sea level, melting of glaciers, intense heat waves and many more; it is essential to reduce usage of traditional energy sources like coal, petroleum and natural gas. These fossil fuels release carbon dioxide upon being burnt and trap heat in the atmosphere, which is a negative externality of using fossil fuels and causes social discontent. Carbon tax is a tax that is levied on the usage of fossil fuels, it is also known as carbon pricing as it is the cost or charge that has to be paid per tonne of carbon dioxide emitted into the atmosphere. Since carbon taxes are levied to amend for the negative external effects of using fossil fuels, it is a type of Pigouvian tax (Pigou, 1920). Pigouvian taxes tend to correct inefficient markets and improve social welfare by doing so. Taxing carbon was first implemented in Finland in 1990 and has come a long way since then by being implemented in many countries but it has a long way to go to achieve its full potential. Some of the largest producers like China and United States have not effectively and completely implemented carbon tax. In this paper, we will focus on the implementation and effects of carbon tax law in British Columbia, Canada; which is said to have the most comprehensive and transparent carbon tax policy in the Western Hemisphere, if not the world

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