Environmental concerns such as global warming have driven governmental organizations around the world to fight to reduce greenhouse-gas emissions. The aim is to slow down the effect of climate change caused by the emission of toxic greenhouse gases.
As of 2019, over 40 countries have implemented a carbon tax, whilst 77 countries and over 100 cities have committed to achieving net zero global emissions by 2050.
Our post includes a high level summary of everything you need to know.
‘Carbon Tax’ essential means a tax on the emission of carbon dioxide, methane, nitrous oxide and other greenhouse gases with a high global warming potential (GWP).
Carbon tax is an important tool in trying to price the true cost of products that have an impact on our climate. Many economic commentators believe it is the most effective economic tool for reducing greenhouse gas emissions.
Why a Carbon Tax?
Carbon Dioxide, Methane, Nitrous Oxide, and other greenhouse gases emissions are increasing global temperatures, rising sea levels, shifting rainfall patterns, boosting storm intensity, as well as harming coral reefs and other marine life. According to NASA (2018), greenhouse gas emissions create potential economic problems such as property damage from storms, reduced agricultural resources and activities to name just a few
A carbon tax puts a price on the emissions of these gases and encourages businesses to emit less of them.
Carbon tax in the European Union
In 1990, Finland was the first country in the world to apply a carbon tax. Since then, 15 European governments have adopted the new tax law. In 2010, the European Commission proposed European Union Greenhouse Gas Emissions Trading Scheme (EU ETS) which is addressing taxing carbon content rather than the volume of carbon emitted. In this new law, businesses will be charged per tonne of carbon emission. Currently, the tax burden on 1 tonne of CO2 emissions ranges from €1 to €100.
The scope of the tax has not been included in all sectors, and is currently implemented in the logistics and energy sector. However, other sectors such as fashion and textile sectors could be addressed to a more specific carbon tax, as they are currently large producers of greenhouse gas emissions. The scope of each country’s carbon tax differs, resulting in varying shares of greenhouse gas emissions covered by the tax.
Let’s have look at some European countries individually:
Sweden – €112.08/tonne
Switzerland – €83.17/tonne
Germany – €25/tonne (planned in January 2021)
France – €44.6/tonne
United Kingdom – €20.34/tonne
It is worth mentioning that, in Europe, those numbers will dramatically increase in upcoming years according to new laws set out by the European Commission.
Carbon Tax in United States
According to the legislation in the United States, products manufactured from fossil fuels, will not be taxed. Only the direct burning of the fuels will impose a tax. That means carbon tax will be imposed on combustion. The amount of CO2 released in burning any fossil fuel is strictly proportional to the fuel’s carbon content. In this sense, carbon tax is levied “upstream”. However, if the CO2 is permanently sequestered (stored) rather than released to the atmosphere, no tax will be imposed.
Should the fashion sector be in the scope of Carbon Taxation?
Other than the transport and energy sectors, the fashion industry is responsible for 10% of global carbon emissions - more than all international flights and maritime shipping.
If the fashion sector continues on its current trajectory, that share of the carbon budget could jump to 26% by 2050, according to a 2017 report from the Ellen MacArthur Foundation.
A carbon tax will encourage fashion brands to use new, innovative and more eco-friendly ways of production as well as disposal, which will eventually positively affect our environment.