Economics Dictionary of Arguments

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Geroe I 18
Carbon Taxation Strategies/Business Tax/Investment Incentives/Geroe: Adjustments to business taxes to mitigate the commercial impacts of a carbon tax could be implemented so as to maximize emissions reductions. Rather than an across-the-board approach under which all liable entities received a fixed reduction in specified other taxes, a tiered approach could be adopted. For example, power generators could earn reductions in other taxes on the basis of percentage of certified reductions in emissions under a coal-fired generation baseline. So, potentially, a solar power station could obtain close to a 100% tax exemption, a hybrid solar-natural gas station say a 30% reduction, or a coalfired power station with carbon geosequestration 5% to 80% reduction based on the actual proportion of emissions verifiably sequestered. This approach could support emissions reductions at significantly lower levels of carbon taxation/prices than would otherwise be the case. It would also enable financing of currently expensive clean energy technologies at a significantly reduced rate of subsidy, FIT [federal income tax], or other state-based support. This approach is comparable with the Clean Energy Target design recommended by the Finkel report on energy security for the Australian government, under which certificates would be based on percentage reductions below an emissions intensity baseline (Finkel, Moses, Effeney, & O’Kane, 2017)(1).
Various tax incentives have been used to incentivize low-carbon investments more generally, such as energy efficiency projects. In terms of both social equity and political feasibility, this tax reduction approach is superior to taxing low-carbon projects at a rate equal to high-polluting industries and passing on higher costs for clean energy (under RPS, FIT, and carbon pricing policies) to consumers. In addition, trade-exposed (and other) industries could receive enhanced tax write-offs for energy efficiency expenditures, as an alternative either to exemption from scheme coverage, receipt of free permits (‘‘grandfathering’’) under an ETS, or to mitigate compensation requirements. This approach would maintain the incentive to invest in low-emissions technology
Geroe I 19
inherent in a price on carbon while also mitigating carbon leakage and loss of international competitiveness. >Carbon Taxation Strategies/Fankhauser.


1. Finkel, A., Moses, K., Effeney, T., & O’Kane, M. (2017). Independent review into the future security of the national electricity market (Report for the Australian Commonwealth Government). Retrieved from https://www.energy.gov.au/government-priorities/energy-markets/independent-review-future-security-national-electricity-market.


Steven Geroe, 2019: “Addressing Climate Change Through a Low-Cost, High-Impact Carbon Tax”. In: Journal of Environment & Development, Vol. 28/1, pp. 3-27.


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Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution.
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

Geroe I
Steven Geroe
Addressing Climate Change Through a Low-Cost, High-Impact Carbon Tax 2019


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