Internalising pollution externalities
with a carbon price: a simplified
visual guide
Martin C. Jones
The views expressed in this presentation are the author's personal opinion and are not intended
to represent those of his employer or any third party .
When you purchase products whose production
causes greenhouse gas emissions, that
damages the environment, which affects
everybody (not just the purchaser).
But these environmental costs aren’t reflected in the
prices of the products...
Cost
Damage
Price
...making them seem cheaper than less polluting
alternatives.
Cost
Damage
Damage
Price
Price
A price on pollution, via a “carbon tax” or emissions
trading scheme...
Cost
Damage
Price
...would slowly raise the price of products...
Cost
Damage
Damage
Carbon Price
Price
Price
...to reflect their true cost.
Cost
Damage
Price
Damage
Carbon Price
Carbon Price
Price
Price
This will make buying less polluting products and
reducing emissions more attractive, encouraging
people and companies to change their behaviour.
Cost
Damage
Carbon Price
Carbon Price
Price
Price
Price
Before a Carbon Price
Dirty energy
product
Clean energy
product
Dirty energy
product
Clean energy
product
Cheaper
option
Price
Price
Carbon
Price
Cheaper
option
Price
After a Carbon Price
Price
And because the revenue is returned as compensation...
Cost
Compensation
Carbon Price
Carbon Price
Price
Price
8
7
6
5
Clean Energy
Product
4
3
Dirty Energy
Product
2
1
0
Category Category Category Category
1
2
3
4
...most people will be better off monetarily...
Cost
Carbon Price
Carbon Price
Price
Price
Compensation
...and everyone will benefit from reducing the
effects of climate change.