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Effectiveness of Carbon Tax in Environmental Sustainability Proposal

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Updated: Apr 30th, 2020


The question of environmental sustainability remains the most appropriate subject in ecological economics. With the evident increased knowledge on the effects of emitting pollutant gases into the environment, nations around the world continue to struggle to minimise environmental degradation using various mechanisms.

On this end, greenhouse gases are one of the most feared causes of environmental degradation and exhaustion of the Ozone layer. Carbon dioxide is one of the greenhouse gases that have detrimental effects on environmental sustainability. Emission of carbon gases into the atmosphere results in the greenhouse effect, which leads to the weakening of the Ozone layer.

Consequently, a weakened Ozone cover paves a way for Ultraviolet rays that can cause skin cancer. It also creates a way for acid rains that cause corrosion of buildings and destruction of plants. Moreover, melting of natural icecaps in the Arctic regions has also occurred.

To avert this situation, various governments, including the government of Australia have enacted control mechanisms such as the carbon tax, which involves taxing all carbon containing products. However, despite the increased use of carbon tax, the world greenhouse effects continue to be felt. Climate changes continue to increase. Carbon tax has been compromised.

It only benefits governments through revenue while not averting the negative consequences of carbon dioxide on the environment. However, few researchers have focused on establishing whether the use of carbon tax is still a feasible venture in ensuring environmental sustainability. This proposal seeks to bridge this gap by establishing the effectiveness of carbon tax in enhancing environmental sustainability.

Research Questions

The proposal will seek answers to the following questions:

  1. To what extent is assessing the social cost of carbon effective in enhancing environmental sustainability?
  2. How does the assessment of carbon leakage enhance environmental sustainability?
  3. How feasible is the use of border adjustment tariffs or bans in promoting environmental sustainability?
  4. How effective is taxation of petroleum products in enhancing environmental sustainability?

Research objectives

This research will seek to achieve the following objectives:

  1. To investigate the extent to which assessing the social cost of carbon is valuable in enhancing environmental sustainability
  2. To find out the effectiveness of assessing carbon leakage in enhancing environmental sustainability
  3. To evaluate the extent to which the use of border adjustments tariffs and bans is efficient in promoting environmental sustainability
  4. To investigate the efficacy of taxation of petroleum products in boosting environmental sustainability

Explanation of the Problem

According to Metcalf (2007), the problem of increased carbon emission into the atmosphere is one of the world’s environmental economics paradoxes. Greenhouse effect has resulted in the rising of world temperatures, penetration of harmful ultraviolet rays, and acid rains that destroy human beings, animals, plants, and structures.

In addition, despite governments and environmentalists intervening using methods such as carbon tax the and cap-and-trade formula, the greenhouse effect of carbon emission continues to cause storms, floods, and melting of world’s snow caps, for example the Arctic (Hasegawa & Salant 2014). According to Morozov (2012), researches have asserted that by the end of the 21st century, there will be no ice in the Arctic area.

Backus (2012) observes the possibility of having very little icecaps in the Arctic by 2030. Moreover, researchers from the US have revealed the possibility of low ice cover in the Arctic as early as the summer period of 2015. Professional intervention measures such as the use of carbon tax have been compromised of only benefiting governments through tax levies with little contribution in solving the problem of environmental degradation.

Carbon duty is charged on all carbon-containing energies depending on their level of carbon elements. Despite efforts to adapt carbon tax by many countries such as the US, China, and the European Union, climatic patterns continue to change because of carbon emissions. Few researches have focused on examining the effectiveness of the widely adopted carbon tax in enhancing environmental sustainability.

This proposal will address specific problems that result from the current carbon tax plan. For example, it will investigate the extent to which assessing the social cost of carbon is effective in enhancing environmental sustainability among other objectives.

Literature Review

This chapter presents the existing literature on the effectiveness of carbon tax in enhancing environmental sustainability. The literature is presented in the form of theoretical and empirical review. The paper summarises the reviewed literature while citing the available gaps that the proposal intends to seal. A conceptual framework is also presented.

Theoretical Review

This study will be based on the economic theory of environmental sustainability. According to Agarwal and Narain (1991), the economic theory presents natural capital as a key facet of growth and development whose continued existence should be assured. Emission of carbon gas and other greenhouse gases by industries results in the diminution of the Ozone layer.

The situation is associated with dangerous environmental impacts. Agarwal and Narain (1991) advise that sustainable development should ensure a balance between environmental and economic development. Therefore, the application of this theory will look into the impacts of various measures under the carbon tax procedures and their efficacy in ensuring sustainability of the environment.

Empirical Review

According to Metcalf (2007), David Gordon initially projected carbon tax back in 1973. Since then, many countries have moved to implement carbon tax in their effort to control carbon pollution. Carbon tax that is levied on pollution requires countries to enact laws that guide the execution process.

Thus, carbon tax is considered a Pigouvian tax since it is an externality that affects third parties (Conefrey, Fitz, & Malaguzzi 2007). Carbon tax is charged according to the marginal damage to the third party, which in this case is the negative externality of CO2 to the environment. Various evaluation approaches have been adopted across the world.

Assessing the Social Cost of Carbon

According to Strand (2013), carbon tax can be estimated using the social cost of the carbon element. Assessments are made on the marginal cost of every one ton of CO2 that is released to the environment at a certain time. Elliot et al. (2010) cite that the evaluation begins by analysing the amount of carbon in the atmosphere at a given point together with its effects on climate.

The evaluation shows the effects of every ton of carbon dioxide that is released into the environment at a given time on the climate. Strand (2013) further asserts that although a discount on the impact of carbon emission is allowed due to time variations, comprehensive and market compliant social cost of carbon estimations can be used in setting carbon tax.

Nevertheless, Metcalf (2007) reveals how various scholars have challenged the social cost of carbon approach with the argument that it is affected by market variations. Disparity in markets makes the social cost of carbon estimation an unstable and erroneous method of basing carbon tax. Calculation of the quantity of pollution that emanates from carbon dioxide is estimated using its mass.

Therefore, scientists measure the mass of carbon dioxide molecules that are emitted into the environment. The results give a quantity of carbon dioxide referred to as a ton of carbon dioxide. Therefore, estimations of the amount of carbon dioxide to be taxed are made per ton. Elliot et al. (2010) observe that some scientists only calculate the population of carbon atoms that are present in the polluted environment.

This process involves calculating the weight of carbon molecules only while eliminating any present oxygen atoms (Repetto 2013). The resulting amount is a ton of carbon, which is equal to four ton of carbon dioxide. However, scientists and environmentalists continue to debate on the accuracy of the SCC as a basis of estimating carbon tax based on the wide standard deviation between the actual values and the estimated values of the total amount of carbon that is emitted into the environment by a particular industry within a given time.

The wide disparity is associated with lack of consensus by environmental scientists on various aspects of climate change (Nishida & Hua 2011). For example, scientists continue to differ on the amount of carbon that can eventually cause climate changes. In addition, different countries accord varying discount rates on carbon emission, thus making the calculations inconsistent.

However, efforts to regulate and standardise social cost of carbon evaluation are ongoing. They are expected to develop better results. As Metcalf (2007) confirms, countries that apply the social cost of carbon evaluation in levying tax on carbon emission are more focused on the impact of carbon emission on their environment than on the accuracy of the method. Environmentalists hold that social cost of carbon is more accurate within a country than across international borders since the environment is relatively similar.

Assessment of Carbon Leakage

Elliot et al. (2010) present the international community as a body that is also concerned with carbon leakage. Carbon seepage refers to the impact that policies of carbon production in one motherland can have on another in cases of disparities in the systems. Strand (2013) further affirms that carbon leakage has both negative and positive impacts.

For example, spill over results in a reduction in the overall effectiveness of the effort to reduce the total emission. According to Barclay (2012), in the evaluation of carbon leakage, the total impact should be arrived at through an analysis of both short-term and long-term effects. The impacts of short-term leakage, for example in the developing countries, may seem minimal.

However, when they are combined with the increased emission from industrialised countries, they cause much harm. In developing countries, there may be a positive leakage because of the low demand on fossil fuels compared to the situation in developed nations.

Developed nations can meet their energy demands by substituting fossil fuel with coal. This plan significantly reduces their carbon emission. Therefore, developed nations are required to give incentives to developing nations to cater for carbon leakage (Yakao 2014).

Use of Border Adjustments, Tariffs, and Bans

According to Luo and Tang (2014), there have been an outcry by the international community following border adjustments, tariffs, and bans based on the witnessed variations in carbon tax. Some countries are keen to levy carbon tax while others do not. Barclay (2012) observes how international environmental concern groups have called for the application of tariffs, tax, and trade bans on countries that do not exercise carbon tax.

The premise is that if border tax is levied, it can cater for carbon emissions that result from imported goods that come from countries that do not levy carbon tax. Carbon tax can also be pushed through trade bans or enactment of tariffs on countries that have not enacted policies on carbon tax.

However, such acts can be punishing to a country that does not levy carbon tax, especially at a point where the World Trade Organisation (WTO) has not enacted any laws on how taxes on climate pollution should be levied.

Taxing Petroleum Products

Luo and Tang (2014) assert that carbon emission can also be evaluated directly through the amount of petroleum products that are consumed in a country. Products such as gasoline, diesel, jet fuel, and petrol are taxed. Each product is charged according to the amount of carbon it holds.

However, the effectiveness of taxation on petroleum products is questioned since prices of petroleum products have not deterred people from consuming more of these products. Development of lower energy consuming vehicles can work better.

The following conceptual framework shows the dependent and independent variables that yield to environmental sustainability.

Conceptual Framework


The methodology section will deal with the description of methods that will be used to carry out the study. The subsections include research design, study location, target population, sampling procedures and sample size, research instrumentation and their validity and reliability, methods of data collection, and data analysis.

Research Design

The study will adopt descriptive survey research design to study the effectiveness of carbon tax in enhancing environmental sustainability. According to Kothari (2008), descriptive research is concerned with conditions that already exist, practices that are already held, ongoing processes, and developing trends.

Descriptive survey research design is the most appropriate when the purpose of a study is to create a detailed description of an issue (Saunders et al. 2012). Since the study will look into the effectiveness of carbon tax in enhancing environmental sustainability, the descriptive design will be appropriate for the study.

Target Population

The study will be conducted in manufacturing industries in the central district of Australia. Environmental sustainability officers in the 29 industries will form the population for this research. The research will further collect data from the District Environmental Sustainability Officer (DEHO). Hence, the population for this research will be a universe of 30 individuals.

Sampling Procedure

According to Saunders et al. (2012), a sample is a portion of a population that is being studied. It represents the larger population. It is used to draw inferences about the population. The sampling procedure is widely used in the social sciences as a way of gathering information concerning a population without having to measure the entire population (Cooper & Schidler 2011).

The study will employ a census of 30 respondents. This technique was arrived at because the target population is small and hence the reason why all people will be interviewed.


The following section describes the instruments that will be used to collect data from the respondents.

Data Collection Instruments

The study will employ two data collection instruments, namely questionnaires and the interview schedule. The questionnaires will be used to collect information from the environmental sustainability officers in the sampled industries. According to Cooper and Schidler (2011), a questionnaire is easy to administer.

Questionnaires also reduce biasness since the researcher’s opinions will not influence the respondents in answering questions in a certain manner unlike if it were telephone or face-to-face surveys. The questionnaires will be divided into two sections, namely A and B, which will contain both open-ended and close-ended questions.

Section A will aim at gathering the environmental sustainability officers’ demographic and background information. Section B will aim to establish the effectiveness of carbon tax in enhancing environmental sustainability.

Interview schedules will collect more information from the district environmental sustainability officers. This particular instrument was selected because DEHOs are resourceful individuals who have a good knowledge of environmental sustainability trends in the district.

They will shed more light on the effectiveness of carbon tax in enhancing environmental sustainability. The main advantage of the interviews is that the researcher (interviewer) can modify the questions if needed, clarify doubt, and/or ensure that respondents understand the questions by repeating or rephrasing them if need be.

Instrument Validity

Bryman and Bell (2011) present validity as the degree to which a test measures what it is expected to determine. For this study, content validity will be used. The researcher will ensure content validity by consulting a well-informed supervisor in the department of environmental sustainability. The researcher will also seek input from colleagues and statisticians.

Instrument Reliability

Kothari (2008) defines dependability as a measure of the degree to which a study tool records steady observations after constant experiments. Reliability of the instruments will be established through a pilot study. According to Orodho (2005), a population of 10% of the sample is sufficient for piloting instruments.

The instrument will be pretested in three manufacturing industries in the neighbouring eastern district. Test-retest technique of reliability will be then employed whereby the pilot questionnaire and interview schedule will be administered to the respondents twice within a two-week interval.

The researcher will use the Cronbach’s alpha to determine the reliability of the instrument. A Cronbach’s alpha of 0.8 and above will be taken as acceptable reliability.

Data Collection Procedures

On an agreed date, with the assistance of enumerators, the researcher will administer the questionnaires and the observation checklist.

Data Analysis

Kombo and Tromp (2006) define data analysis as the interpretation of collected raw data into useful information. After the questionnaires and interview schedule are returned, all responses will be assembled for completion, organisation, and analysis. Descriptive statistics will be used to analyse the quantitative data.

The researcher will present the data in frequency and percentage tables, bar graphs, and pie charts. Qualitative data will be organised into themes and patterns, which will be categorised through content analysis. The themes will then be tabulated. Computer software, namely the Statistical Package for Social Sciences (SPSS) version 19.0, will be employed.


The findings of this research will be replicable and applicable elsewhere with similar carbon tax conditions as the studied population. These regions may include other districts in Australia and/or other countries that have adopted carbon tax in a bid to ensure environmental sustainability. Generalisability will be assured through proper sampling and sampling procedures (Bryman & Bell 2011).

Ethical Issues

Ethical issues in dealing with the respondents will be put in place. Such issues will include secrecy of identity of the respondents. For example, all respondents will be required not to reveal their names or any other details that may be used to identify their individuality on the questionnaires.

Consent Forms

The researcher will seek an authorisation letter from the department of environmental sustainability at the university. The authorisation letter will be used to apply for a research permit from the National Council for Science and Technology before embarking on the data collection exercise.

The permit for the study will be presented to the central district DEHO before commencing the research. Upon authorisation, the researcher will then make appointments with the environmental sustainability officers of the sampled industries.


The table below shows the different research activities and their duration. For effective research process, the researcher will adopt the following schedule to ensure that each activity is undertaken within the set time and duration.

Activity Time
Research Proposal Development and Writing Jan 10– March 2015
Research Piloting April 2015
Preparation of Research materials and Data Collection April-May 2015
Research Data Analysis 1-15 June 2015
Final Research Report Writing 18-31 June 2015
Submission of the Final Research Report for Approval July-August 2015


Agarwal, A & Narain, S 1991, ‘Global warming in an equal world’, International Journal of sustainable development, vol.2 no. 1, pp. 98-1-4.

Backus, G 2012, ‘Arctic 2030: What are the consequences of climate change?: The US response’, Bulletin of the Atomic Scientists, vol. 68 no. 4, pp. 9-16.

Barclay, R 2012, ‘Regulatory Economics: Saved by the Carbon Tax?’, Natural Gas & Electricity, vol. 29 no. 4, pp. 31-32.

Bryman, A & Bell, E 2011, Business research Methods, Oxford University Press, Oxford.

Conefrey, T, Fitz, J & Malaguzzi, L 2013, ‘The impact of a carbon tax on economic growth and carbon dioxide emissions in Ireland’, Journal of Environmental Planning & Management, vol. 56 no.7, pp. 934-952.

Cooper, R & Schrinder, S 2011, Business Research Methods, McGraw-Hill, New York, NY.

Elliot, J, Foster, I, Kortum, S, Munson, T, Pérez, F & Weisbach, D 2010, ‘Trade and Carbon Taxes’, American Economic Review, vol. 100 no. 2, pp. 465-469.

Hasegawa, M & Salant, S 2014, ‘Cap-and-trade programmes under delayed compliance: Consequences of interim injections of permits’, Journal of Public Economics, vol. 119 no. 1, pp. 24-34.

Jeffers, J 2010, ‘Climate Change and the Arctic: Adapting to Changes in Fisheries Stocks and Governance Regimes’, Ecology Law Quarterly, vol. 37 no. 3, pp. 917-977.

Kombo, K & Tromp, A 2006, Proposal and thesis writing: An introduction, Pauline’s Publications Africa, Nairobi.

Kothari, R 2008, Research methodology; Methods and techniques, New Age International Publishers, New Delhi.

Luo, L & Tang, Q 2014, ‘Carbon tax, corporate carbon profile and financial return’, Pacific Accounting Review, vol. 26 no. 3, pp. 351-373.

Metcalf, G 2007, A Green Employment Tax swap: Using a Carbon Tax Swap to Finance a Payroll Tax Relief, World Resources Institute, Washington, DC.

Morozov, Y 2012, ‘Arctic 2030: What are the consequences of climate change?: The Russian response’, Bulletin of the Atomic Scientists, vol. 68 no. 4, pp. 22-27.

Nishida, Y & Hua, Y 2011, ‘Motivating stakeholders to deliver change: Tokyo’s Cap-and-Trade Programme’, Building Research & Information, vol. 39 no. 5, pp. 518-533.

Orodho, J 2004, Statistics made user friendly for education and social sciences research, Masola Publishers, Masola.

Repetto, R 2013, ‘Cap and Trade Contains Global Warming Better Than a Carbon Tax’, Challenge, vol. 56 no. 5, pp. 31-61.

Saunders, K, Lewis, P & Thornhill, A 2012, Research Methods for Business Students, Pearson, Harlow.

Strand, J 2013, ‘Strategic climate policy with offsets and incomplete abatement: Carbon taxes versus cap-and-trade’, Journal of Environmental Economics & Management, vol. 66 no. 2, pp. 202-218.

Yakao, Y 2014, ‘Policy learning and diffusion of Tokyo’s metropolitan cap-and-trade: making a mandatory reduction of total CO2 emissions work at local scales’, Policy Studies, vol. 35 no. 4, pp. 319-338.

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