In order to promote capacity addition of renewable and carbon free or low carbon emission technologies for electricity generation to mitigate climate change, a new school of thought is being advocated that instead of taxing carbon and raising prices for everyone, let’s selectively remove taxes from electricity sources producing zero (or nearly zero) emissions (nuclear, wind, solar, geothermal, hydro) and incent further reductions in emissions from coal and natural gas facilities.
There seems to be some merit in the proposal that advocates carbon tax at supply side compared to demand side. Though, supply side carbon tax burden will also be passed on indirectly to consumers at demand side, however, it will not provide much incentives to consumers at demand side to conserve energy or use it efficiently. Moreover, it is most important that how carbon tax collected either at supply side or demand side is going to be effectively utilised for promoting generation and use of renewables and carbon free energy technologies at supply side and changing the behaviour of consumers at demand side to conserve the energy and utilize it efficiently. Therefore, a hybrid mixture of carbon taxation at supply as well as demand side needs to be put in place. And tax collected at supply side should be exclusively used for research and development of carbon free or low carbon emission technologies and subsidising their use. Carbon tax collected at demand side should be used to incentivise use of energy efficient technologies in equipment and appliances at demand side.