Following the Africa Climate Summit, which took place in Nairobi, Kenya; President Ruto and the Kenya government have proposed a global carbon tax on carbon emission as a way to fight climate change.
According to President Ruto and his government, the proposed global carbon tax aims to facilitate the transition to clean energy and foster the polluter pays principle. This means that a global carbon tax would put a price on carbon emissions, making it more expensive for companies and individuals to pollute. The Nairobi Declaration urged world leaders to rally behind the proposal, which would include a carbon tax on fossil fuel trade, maritime transport, and aviation.
The Kenyan government believes that this would incentivize them to switch to cleaner energy sources and reduce their emissions. The revenue from the carbon tax could be used to fund climate action in developing countries, which are disproportionately affected by climate change.
Imposing a carbon tax on carbon emissions is not the way to solve climate change. First, and foremost, climate change is a natural evolution. Human interference, especially through government intervention, is a very flawed approach to mitigating the risks of carbon emissions.
Let us not forget that there is a carbon market. And the carbon market is subjected to market forces like any other market. Thus, a carbon tax would unavoidably distort the carbon markets in several ways. First, it would create a new cost for businesses and individuals to emit carbon. This would make it more expensive to produce and consume goods and services that are carbon-intensive, such as fossil fuels, electricity, and transportation.
Second, while the tax may incentivize businesses to invest in low-carbon technologies and reduce their emissions, it would also make it more difficult for some businesses to compete, particularly those that rely heavily on carbon-intensive production processes.
Third, the tax would make it more difficult for carbon markets to operate effectively. Carbon markets are systems that allow businesses to trade carbon credits. Carbon credits are permits that allow businesses to emit a certain amount of carbon. By putting a price on carbon, a carbon tax would make it more expensive for businesses to buy carbon credits. This could make carbon markets less efficient and less effective at reducing emissions.
Fourth, the tax could lead to carbon leakage. Indeed, carbon leakage occurs when businesses move their operations to countries with less stringent climate policies in order to avoid paying the carbon tax. This could reduce the overall effectiveness of the carbon tax in reducing emissions.
It is important for the Nairobi Declaration to carefully weight the implications of a global carbon tax. While this tax could be a source of revenue for the Kenyan government, it will not improve the efficiency of the carbon market by reducing carbon emissions. The proposal for a global carbon tax is still in its early stages, and there it will be a serious mistake to try to implement such a tax. Better results are produced when market forces are left alone.