The Carbon Tax Debate

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Free market oriented environmentalists have long favored some form of "carbon tax". Traditionally, environmental regulations have either established quotas of polluting emissions which are permissible (often in the context of a permit system) and required particular technological methods be taken to address pollution. A carbon tax, instead, would impose a tax either directly on emissions of pollutants associated with fossil fuels, or indirectly, by imposing a tax on fuels likely to generation such emissions in an amount reasonably related to the emissions they are likely to generate. In this way, the market would have an incentive to consider the harm it creates to others (the absence of which is called in economic parlance an externality), while not having to navigate complicated command and control type environmental regulations which may secure pollution reduction in a more economically costly way than business acting with the incentives created by a carbon tax.

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