The Austrian tax code is about to make a dramatic change. In less than three months, the country will commence with their announced plans to reform the country’s tax system in an effort to curb greenhouse gas emissions, and that could forever change the perception of these types of taxes.
In its most basic terms, a carbon tax is a fee imposed on the burning of carbon-based fuels, such as coal, oil, and gas. Each ton of carbon emitted is taxed at a certain rate, with the hope that the extra cost will limit the consumption of fossil fuels and encourage further development of alternative energy sources.
Starting July 1, Austrians will pay a new carbon tax of 30 euros (approximately $33) per ton of CO2 — a cost that’s likely to be added to consumer bills by companies. That amounts to 55 euros ($60) per ton in 2025. Austria is far from the first nation to enact a carbon tax. Twenty-seven other countries, including the United Kingdom, Canada, and Japan, have such taxes, but the United States is one of the few industrialized nation holdouts. This begs the question: As Austria jumps head-first into this bold policy initiative, should the U.S. be taking notes?
It’s not like our nation hasn’t tried. In 2016, the Obama administration proposed a national carbon tax, only for it to receive monumental backlash from Congress, including a non-binding measure denouncing a carbon tax by Congressional Republicans. In 2018, Washington State produced a bill that would have made it the first U.S. state to levy a straight up tax on fossil fuels. But despite some forward momentum, the proposed legislation did not have enough votes to even make it out of the then-Democratically controlled State Senate.
The latter of the proposed taxes would have begun in 2019 and initially imposed a $20 per ton tax on fossil fuels. Starting in 2021, the tax would have increased $1.80 per ton each subsequent year until it hit $30 a ton — estimated to be in 2030. In the first two years, the tax was projected to raise $766 million and increase to about $988 million in the next two years.
But predictably, those projections – and the reduced emissions that would seemingly come along with them – have been undercut by a current of critics on both sides of the political aisle who believe the tax is counterproductive. Some argue this type of tax will unfairly penalize businesses, a concern that is prevalent both in the biggest C-suites in the country as well as small businesses just getting back on their feet after the pandemic.
There are individual concerns, too. Broadly speaking, Americans have never met a tax increase they didn’t greet with at least a healthy helping of skepticism, and culturally, Americans have been slower to address climate issues with the same urgency of some European nations. In the current politically divisive environment, a carbon tax would be campaign fodder for every member of Congress running in the 2022 midterm elections. All of these factors are working against significant momentum building toward this type of tax stateside.
So what is it about Austria’s tax that might actually move the needle in the minds of American lawmakers and taxpayers? Economic incentive.
Some of the taxes collected by Austria will be returned to residents in the form of a “climate bonus” of up to 200 euros per year. Previously proposed cap-and-trade schemes here in the U.S. would have focused on corporate incentives, which would have allowed companies to sell their unused emission quota to help offset firms that went over their own allotment. But focusing on a citizen incentive might be more palatable to voters. Any version of a U.S. carbon tax could – and some proponents would say, probably should – include this type of provision. And that in and of itself is reason enough to watch Austria’s foray into taxing carbon emissions with great interest.
Austria is attempting to thread the needle, finding a way to make an environmental cause also act as a base of tax incentives that don’t just simply pad a specific jurisdiction’s coffers. It’s an interesting approach, and if it proves effective, other countries and municipalities will take note. It’s far from a certainty, but this approach is intriguing, and from a U.S. perspective, it bears careful monitoring.