What Are Carbon Taxes?

Written By Teacher: Liz Ransom

As a High School Spanish teacher and student newspaper advisor, Liz has taught for over 20 years and has served as World Languages Department Chair and K-6 summer camp activities leader. She has worked in Ohio, Maine, New Jersey, Maryland, and Chile.

We know what causes climate change, and we even know what we can do to stop it, but how do we make climate solutions happen? Students can learn about carbon taxes in this simple video, which also provides a carbon tax success story. This online lesson places carbon taxes in the context of other economic policies intended to drive down climate change. Students can test the impact of carbon pricing by making it a part of their climate solutions scenario during this lesson on Climate Interactive’s EnRoads.

Written By: MIT Environmental Solutions Initiative

The MIT Climate Change Engagement Program, a part of MIT Climate HQ, provides the public with nonpartisan, easy-to-understand, and scientifically-grounded information on climate change and its solutions.

Carbon pricing is a policy tool to lower emissions of carbon dioxide (CO2) and other greenhouse gases. Emissions are produced when fossil fuels are burned to do things like make electricity, fuel vehicles, make materials and products, and heat and cool homes. These emissions are the main cause of climate change, resulting in flooding, sea level rise, drought, heatwaves, and other costs to society.

Currently, the public bears the costs of these impacts. The goal of carbon pricing is to shift the responsibility for these costs to those who produce the emissions. When producers and consumers have to pay for each ton of CO2 they emit, they have an economic incentive to shift away from fossil fuels, improve their energy efficiency, and invest in low-carbon technology.

How to set a carbon price

In theory, a carbon price should be equal to the “social cost of carbon.” For example, if one ton of CO2 emissions costs the public $100, it should cost $100 to emit that ton of CO2. However, that price is very hard to determine, so often carbon prices are instead set at levels that policymakers think will help them meet certain emission or temperature targets.

There are two main approaches to carbon pricing: a carbon tax and a cap-and-trade system.