Discuss the effect of a carbon tax on the level of carbon emissions

A carbon tax can be implemented to address the negative externality from carbon emissions at the point of production from firms. The tax forces firms to cut their emissions as it increases their costs; this should allow for us to see a reduction in emissions towards a more socially optimal equilibrium, reducing the effect of the negative externality. (draw a diagram showing mpc and msc). It also allows the government to collect a fiscal dividend, which could be used to address the problem of carbon emissions elsewhere, such as through increasing investment into renewable energies. However, it could be argued that it depends on the extent of the tax and the market it is enforced in. For example, large companies such as monopolies may be able to continue to produce anyway, making the tax ineffective. At the same time, it also depends on the elasticity of demand whereby if demand is very inelastic, firms can pass the cost of the tax onto their consumers who will continue to demand it anyway, this means emissions will not actually be reduced as much.

EJ
Answered by Evie J. Economics tutor

1501 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Identify and describe the two main types of Inflation and their triggers.


How do I answer an economics essay question?


Discuss‘looserfiscalpolicy’and‘supply-sidereforms’ that may be used by governments of Eurozone countries to increase economic growth.


Evaluate government policies that could be used to reduce income inequality and wealth inequality in a developed country of your choice. 25 marks


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning