Individual Carbon Taxes Take Center Stage

What’s the best way reduce carbon emissions? When it comes to companies, policymakers have favored (often complicated) cap-and-trade systems that set limits on CO2 emissions, then let the market figure out the rest. But for Joe Public, that approach is unwieldy. Better, so the theory goes, to create a flat carbon tax that individuals must pay depending on their greenhouse gas output.

On Sept. 10, France took a step closer to creating such a system. Under the proposal legislation (expected to become law next year), people will pay an initial tax of €17 ($25) per metric ton of CO2 emissions produced. It will apply to fuel for cars, houses, and small factories, with people paying less if they use more eco-friendly energy sources. Natural gas, for instance, produces less carbon than coal, so households fueled by gas will face a smaller CO2 tax bill. French President Nicolas Sarkozy says the carbon tax will rise over time.

To be clear, the proposal will effect those firms (and households) not already included in the European Union Emissions Trading System, the world's largest mandatory cap-and-trade scheme in the world. And the hope is people/companies will switch to cleaner energy sources to avoid forking out the cash. A flat tax also is something individuals already understand, and should help avoid confusion about who pays what and where.

But there still are downsides to the French proposal. For one, critics say it’s a government attempt to fill its coffers just when other tax revenues are in a tailspin. Poorer households (often with out-dated -- and inefficient -- heaters) also could face disproportionately high bills, though French policymakers say they'll get state aid. Politicians may similarly lack the market-based incentives provided by cap-and-trade, and could funnel the eco-revenue into pet projects or uneconomical technologies.

Despite the concerns, many countries are mulling (or already have passed) carbon taxes for individuals. That, combined with a global push for cap-and-trade schemes, will likely mean high energy costs, for everything from driving your car to paying your monthly energy bills. France certainly isn't the first to propose such a tax. And it won't likely be the last.