Right: a wind farm near Yorke Peninsula in South Australia. Wind farms would reap much financial benefit from any "cap and trade" system which followed the introduction of a carbon tax.
Background information
(The following information is drawn from three sources. The Wikipedia entry on 'carbon tax'. The Wikipedia entry on 'emissions trading schemes' and the Debatepedia entry on the question 'Should a carbon tax be part of plans to combat global warming?'
The Debatepedia entry can be found at http://debatepedia.idebate.org/en/index.php/Debate:_Carbon_tax
The Wikipedia entries can be found at http://en.wikipedia.org/wiki/Emissions_trading
and http://en.wikipedia.org/wiki/Carbon_tax)
Carbon taxes and emissions trading schemes
A carbon tax is an environmental tax on emissions of carbon dioxide and other greenhouse gases. A carbon tax can be implemented by taxing the burning of fossil fuels such as coal, petroleum products such as petrol and aviation fuel, and natural gas in proportion to their carbon content.
The primary purpose of a carbon tax is to discourage the inefficient use of fossil fuels, which when burnt release carbon dioxide and other greenhouse gases into the atmosphere and so contribute to global warming.
By increasing the cost of greenhouse gas emitting energy sources, a carbon tax also increases the competitiveness of non-carbon technologies. Thus, a carbon tax is meant to encourage the use of non-combustion energy sources such as wind, sunlight, hydropower and nuclear power.
The Gillard Government hopes that within three to five years Australia will be able to shift to an emissions trading scheme (ETS). Emissions trading (also known as cap and trade) is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.
A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant.
Firms are required to hold a number of permits (or carbon credits) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level.
Firms that need to increase their emission permits must buy permits from those who require fewer permits. The transfer of permits is referred to as a trade. Thus, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. It is anticipated that this ETS will ultimately operate internationally.
Carbon taxes and emissions trading schemes around the world
United States
The United States has no schemes currently in place that affect the whole country. A number of jurisdictions have instituted schemes of their own.
In November 2006, voters in Boulder, Colorado passed what is said to be the first municipal 'carbon tax'. It is a tax on electricity consumption (utility bills) with deductions for using electricity from renewable sources. The goal is to reduce carbon emissions to those outlined in the Kyoto Protocol.
In 2006, the state of California passed AB-32 which requires California to reduce greenhouse gas emissions. In May 2008, the Bay Area Air Quality Management District, which covers nine counties in the San Francisco Bay Area, passed a carbon tax on businesses of 4.4 cents per ton of CO2.
In May 2010 Montgomery County, Maryland passed the United States' first county-level carbon tax. The new legislation calls for payments of $5 per ton of CO2 emitted from any stationary source emitting more than a million tons of carbon dioxide during a calendar year.
Canada
Although there is no federal carbon tax, some Canadian provinces do have carbon taxes. These include Quebec, British Columbia and Alberta.
India
On July 1, 2010 India introduced a nation wide carbon tax of 50 rupees per metric tonne ($1.07/mt) of coal both produced and imported into India. In India coal is used to power more than half of the country's electricity generation.
New Zealand
In 2008, the New Zealand Emissions Trading Scheme was passed into law.
Europe
In Europe, a number of countries have imposed energy taxes or energy taxes based partly on carbon content. These include Denmark, Finland, Germany, Italy, the Netherlands, Norway, Slovenia, Sweden, Switzerland, and the United Kingdom. None of these countries has been able to introduce a uniform carbon tax for fuels in all sectors.