[The Editors' Verdict] Caution Needed for Carbon Tax Campaign Pledges

One of the key issues in the 20th presidential election will be carbon neutrality. While everyone agrees on the principle of achieving carbon neutrality, reaching a consensus on the implementation methods is not easy. The expansion of nuclear power usage is one of the options for achieving carbon neutrality by 2050, and the introduction of a carbon tax is also likely to be a subject of debate. The Democratic Party of Korea advocates for a carbon tax as a campaign pledge in the presidential election. In particular, the main idea is to link the carbon tax to basic income, securing the necessary revenue for basic income through the carbon tax. The primary purpose of imposing a carbon tax is to encourage companies to reduce carbon emissions. While caution is needed in introducing a carbon tax, even more caution should be exercised regarding how the revenue secured from the carbon tax will be used. If a carbon tax is introduced, the revenue should be used for public functions related to implementing carbon neutrality rather than for basic income, which is unrelated to the purpose.

The carbon tax is known to be highly effective because it is directly imposed in proportion to the amount of carbon emissions. It is similar to imposing a high fuel tax to voluntarily limit automobile use in order to suppress gasoline consumption. The carbon tax is imposed on companies, which can pass it on to consumers. In this case, consumer prices rise, and low-income groups may be more strongly affected by the price increases caused by the carbon tax than high-income groups. This is the background for the argument that the carbon tax revenue should be redistributed as basic income to alleviate the burden of price increases on low-income groups caused by the carbon tax. This is a characteristic of all indirect taxes. If indirect taxes are to be used as a source for basic income, it would be better to raise the most universal indirect tax, the value-added tax, and use it as a source for basic income. The carbon tax should be invested in direct tasks for realizing carbon neutrality, such as technology development to reduce carbon emissions, infrastructure construction for carbon neutrality, compensation and transition support for unavoidable industrial technology shifts. Only then can companies overcome the difficulties of carbon neutrality, gain competitiveness, and create a virtuous cycle economy of carbon neutrality that generates new jobs.

Another reason why it is difficult to use the carbon tax as a source for basic income is sustainability. The purpose of the carbon tax is to suppress carbon emissions, and as carbon emissions decrease, it is ultimately a tax that should disappear. Such a tax cannot be relied upon for basic income. Some countries do distribute carbon tax revenue as basic income, with Switzerland being a representative example. However, even Switzerland does not use all carbon tax revenue for basic income and limits the industrial scope subject to the carbon tax. Globally, emissions trading systems are preferred over carbon taxes. While the carbon tax applies to about 5% of carbon emissions, emissions trading systems cover 18%.

Carbon neutrality is a costly task. It is expected to cost trillions of won for technology development and infrastructure construction, including expanding renewable energy, hydrogen production, energy storage, and improving energy efficiency. Even if funds recovered through carbon taxes or emissions trading systems are invested in carbon neutrality, it is far from sufficient. The country with the highest carbon tax in the world is Sweden. Sweden once pursued nuclear phase-out by imposing taxes on nuclear power generation. However, as decarbonization became more important, Sweden abolished the nuclear tax because it was difficult to bear the social costs. This is why the expansion of nuclear power usage should be considered to alleviate the cost burden of carbon neutrality. In this situation, carbon tax revenue cannot be used as a source for basic income. Whether to implement the carbon tax system should be approached cautiously, considering issues such as double taxation and the impact on companies and prices. It should not be pushed as a campaign pledge as if it were a task that must be realized like the nuclear phase-out policy.

Jung Dong-wook, Professor, Department of Energy Systems Engineering, Chung-Ang University