1. Encourages alternatives. A higher price of carbon emissions will encourages firms and consumers to develop more efficient engines or alternatives to consuming carbon emissions. For example, with carbon taxes, it will be more efficient to develop hydrogen engines or solar power.
• Itmight encourage more people to cycle or walk to work. This would have health benefits such as lower risk of heart attack.
• This could make it more feasible to generate electricity from green sources (e.g. solar power). If we develop more green sources it will also make us less reliant on oil.
• It will help make the transition to a post oil economy easier.
2. Raises Revenue. The revenue raised from carbon tax could be used to subsidise alternatives such as green electricity or the revenue raised could be used to repair the damage caused by environmental pollution.
3. Leads to a socially efficient outcome. It makes people pay the social cost and overcomes the excess consumption.
The Externality of SUVs6
In 1985, the typical driver sat behind the wheel of a car that weighed about
3,200 pounds, and the largest cars on the road weighed 4,600 pounds. In
2008, the typical driver is in a car that weighted about 4,117 pounds and
the largest cars on the road can weigh 8,500 pounds. The major culprits in
this evolution of car size are sport utility vehicles (SUVs). The term SUV
was originally reserved for large vehicles intended for off - road driving,
but it now refers to any large passenger vehicle marketed as an SUV, even if
it lacks off - road capabilities. SUVs, with an average weight of 4,742 pounds,
represented only 6.4% of vehicle sales as recently as 1988, but 20 years
later, in 2008, they accounted for over 29.6% of the new vehicles sold
each year.
The consumption of large cars such as SUVs produces three types of negative
externalities: