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Tax to Pay Externalities
Proposal for U.S. Carbon Price 2014 by Zero Externalities

Tax to Pay Externalities


A tax on carbon emissions should match the cost to sequester the same amount of carbon, or pay more to mitigate the effects of not doing so.



The main purpose of a carbon tax is to reduce the carbon emissions from burning fossil fuels, whether that happens directly or more indirectly.  We can use carbon tax revenues to directly pay the cost of reducing and eventually eliminating the carbon emissions, or alternatively, to pay whatever mitigation costs accrue down the road. 

We gain several benefits from this approach:  

  • Most importantly, the carbon emissions would likely be completely cleaned up, or avoided in the first place, whichever is cheaper, since paying the mitigation costs of not doing so would be so much more.  
  • The tax rate should be self-correcting to match those costs, thus eliminating unnecessary taxation as the problems are resolved.
  • The cost of removing carbon emissions would be clear, though the greater cost of paying indirect and ongoing mitigation costs would be much harder to assess.
  • The reason to impose this tax is fairly simple, and simply fair: if the polluters don't pay it, everyone else must pay even more, which is clearly unfair.
  • The cost of burning fossil fuels would, of course, rise to cover the carbon tax, thus incentivizing efficiency and use of alternative, carbon-free fuels.  
  • Given the requirement that all externality costs must be paid, this establishes a strong motivation to find ways to reduce the costs, and thus reduce or eliminate the carbon emissions.
  • This plan directly addresses reduction of carbon emissions, compared to plans that distribute tax revenues to the public at large or subsidize alternative energy development.
  • No "cap" is necessary since all externalities are paid.



Category of the action

Mitigation - Helping U.S. enact carbon price legislation

What actions do you propose?

Policies, laws, and regulations should be created to do the following:

  • Assess where carbon emissions are occurring, how much, and who is responsible.  These emissions occur largely by way of the burning fossil fuels, or burning indirect by-products of fossil fuels such as plastics. But also very importantly, emissions occur in agricultural and forestry settings.  Determine the origin of the carbon, whether it is fossil fuel based, or from other preserved biological origin (e.g. soils and peat bogs).
  • Assess where carbon is being removed from the atmosphere and oceans, how much, and who can take credit for it.


These assessment activities will be paid for by the carbon tax.  Assuring they are carried out without bias or corruption will be an ongoing challenge.

The amount of carbon emissions should be matched by the amount of carbon sequestration.  Generally speaking, the cost of carbon sequestration activities will be paid by the tax on carbon emissions.

Those who must pay the tax on carbon emissions will, of course, want to pay as little as possible.  

  • So, to assure that the cost of removing carbon emissions is as low as possible, it could be determined by auction, in which companies or agencies bid on doing the cleanup.  
  • And to assure that the cleanup is done properly, ongoing assessments of carbon emissions would detect the degree of success or failure.


  • The carbon tax could start close to 0 and be incrementally increased over a few years (say 20% a year over 5 years) so it won't be a huge shock to the economy.  It will also take time to scale up the carbon sequestration efforts, and to implement carbon emission reduction strategies.
  • The tax also needs to cover the cost of regulating and inspecting that assessments and cleanups are done properly. 
  • We might want to tax the burning of biofuels as well, perhaps at a lower rate, at least until CO2 returns to an acceptable level. But note that burning biofuels that were grown using carbon sequestered from fossil fuel burning is no better than releasing the carbon directly.


This proposal, by itself, won't address social inequities caused by carbon emissions or carbon taxation, except where the social costs may be included in the long-term mitigation costs, such as medical expenses. But I believe social inequities that are largely caused by other deeper institutional problems should be addressed in other ways, rather than merely treating the aggravating symptoms caused by the remedy of taxing carbon emissions. 

Fossilized carbon that is used for purposes that do not create carbon emissions and do not pollute the environment in other ways should not be taxed.  For example, carbon that ends up in steel would not be taxed since the carbon will remain locked up in that alloy. It is the burning of fossil fuels or any means of creating atmospheric or oceanic carbon emissions that will be taxed by this proposal.

This approach will address current and future carbon pollution, but not the damage that has already been done.  We can keep raising the carbon tax until we have enough to pay for repairing the previous damage as well, but future polluters are not necessarily responsible for what was done in the past. To be fair, we should find ways to tax those who have benefited from past pollution.

Who will take these actions?

Government, motivated by citizen involvement, will create the tax laws, set up the agencies that perform the assessments of carbon emissions and carbon sequestration.  Several watchdog organizations should be involved as well.

Where will these actions be taken?

All nations should be involved.  For nations that choose not to participate, or do so inadequately or counter-productively, it is appropriate to impose tariffs on imported products to approximate the effect of taxes, and use the revenue in a similar manner to pay for sequestering the carbon.  But tariffs won't address carbon emissions that are not associated with imported products, so we would have to find other ways to effectively discourage the uncooperative behavior of such a nation, such as trade embargoes or economic sanctions.

How much will emissions be reduced or sequestered vs. business as usual levels?

The effect of tying the tax on carbon emissions with the cost of carbon sequestration is that carbon emissions will effectively be reduced to zero, either by encouraging polluters to find ways to avoid creating the emissions, or by paying 100% of the cost of carbon sequestration.

What are other key benefits?

This proposal will directly address carbon emissions and strongly encourage their reduction all the way to zero as quickly as possible, funded most directly by those who are responsible for creating the emissions.  

By limiting the use of carbon tax revenues in this way, we directly address the problem of carbon emissions while avoiding unforeseen consequences of using the revenues in other ways that focus on other social or technical issues while only indirectly addressing carbon emissions.

No arbitrary limit or "cap" need be imposed on carbon emissions since the cost of sequestering all fossil-based carbon will be paid for by the same parties responsible for creating the carbon emissions. 


What are the proposal’s costs?

Roughly speaking, the proposal's direct costs are exactly the same as the cost of completely removing carbon emissions, plus the overhead of administering the program.  

The fossil fuel industry will very likely be negatively impacted, but that will be a good thing for the rest of the world.  We will need to help employees of the fossil fuel industry with job training to find alternative work.

Time line

The carbon tax on fossil-based carbon emissions can be phased in over a period of time commensurate with the urgent need for rapid action, say 5 to 15 years.  At the end of the phase-in period, 100% of emissions will be eliminated, so we can assume the accuracy of recent studies regarding the amount of time we have available to eliminate emissions, a 15-year phase in may be adequate.

Related proposals


(under construction)


There are several technologies available now and under development that can be used:

  • avoid releasing as much or any carbon while extracting the energy from fossil fuels
  • extract and sequester carbon from the atmosphere and oceans. 

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Proposal Summary
Tax to Pay Externalities
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By:  Zero Externalities
Contest: U.S. Carbon Price 2014
How could a national price on carbon be implemented in the United States?