The carbon tax in Sweden

Abstract

To have a reasonable chance of avoiding the worst effects of climate change, the level of carbon dioxide (CO2) in the atmosphere needs to be stabilized as soon as possible. This basically means that the whole world must stop emitting carbon completely within the space of less than two generations. For the rich and developed countries, it is reasonable to demand more, leaving a little more room for the poorest countries to adapt a little more slowly. A suitable goal would be decarbonization by 2050. It also happens to be the official goal in Sweden for 2045 and luckily, there is some degree of unity around this goal even though the environmentalists would like to set the date to 2040 and the conservatives maybe 2050 or 2060. The crucial question is, of course, how is this to be done? Activists often focus on demanding percentage reductions, plans or laws. There is, however, no guarantee that these instruments have any effect. A price of carbon is different. It takes effect automatically in a market economy. Societies are complex and there are numerous policy instruments at various levels. This ranges from the European Community with its plans and its instruments (in particular, the EU Emissions Trading Scheme for climate permits for large industry) to the level of municipalities that plan and permit industries and other economic activities at the local level. Sweden has followed in the footsteps of the United Kingdom in implementing climate legislation and planning (Government Offices, 2008). It has followed Germany in subsidizing renewables, but the most striking feature of Swedish policy is the carbon tax. Economists often put much emphasis on carbon taxation as the prime instrument of climate policy. One of the reasons for this is that in a market economy, affecting the price of a good or resource will typically be (1) the most effective way of changing resource allocation, and also it is (2) the most all-encompass-