Swedish Carbon Tax

The more I've been looking into the culture of Sweden, the more I have gotten excited about the chance to live there for an entire year. One of the draws of studying abroad is that it will let me step into the midst of a new culture and for the first time, have the chance to try and call it my own. Traveling up until now has consisted mostly of 'visiting' other countries, with very little time simply 'being' the country. Sure, it has opened my eyes to other places and ways of viewing issues, but it always ends up by me saying "Aboriginal people feel this..." or "Jordanians would act like this..." or "Jamaicans do things this way..." It will be exciting to respond differently a year from now and be able to finally say, "In Sweden, we thought like this..."

So I've been slowly stumbling through some of the unique features of Swedish culture that I will soon be apart of, and I'm finding that Sweden is definitely a step ahead of us here in the US. Below are just a few of the rankings they have received in the past few years:
  • Climate Change Performance Index (2006 & 2007) - 1st
  • The Global Gender Gap Report (2007) - 1st
  • Corruption Perception Index (2008) - 1st
  • Index of Democracy (2007) - 1st
  • Environmental Performance Index (2008) - 3rd
  • Human Development Index (2007) - 6th
  • Global Peace Index (2009) - 6th
  • Life Expectancy (2008) - 10th
Now the ranking I was most interested in was the Climate Change Performance Index put forth by Germanwatch, a leading environmental group in Europe. And what I found was some interesting facts about Sweden's environmental policies.

One of the more important things to note about Sweden is their carbon tax. Since 1991, Sweden has implemented a carbon tax on much of their society (although certain industries do receive relief or exemption). In doing so, the government has made it more expensive to choose carbon-based solutions over green solutions. Over the years, the tax has slowly increased, transitioning their economy away from fossil-fuel dependency (currently all energy is provided by nuclear and hydro, which isn't perfect but definitely in the right direction). What is really interesting to note however is the impact this tax has had on the Swedish economy. Many critics of a carbon tax claim that such a tax would hinder economic growth and that there is no need to tax a commodity which is already increasing in price (such as gasoline prices).

Sweden poses an interesting answer to the first complaint held by critics. From 1990 to 2006, Sweden cut its carbon emissions by 9% while enjoying economic growth of 44%, showing that it is not valid to make the general statement that a carbon tax will decrease economic growth. In fact, the carbon tax has placed Swedish industries in a unique leadership role and developed a niche global market.

We can also look at the claim that energy costs are rising and a carbon tax is just an unnecessary increase to the price. In fact, as the graph below shows, when adjusted for inflation, the average price of electricity sold by the US electric power industry has not increased gradually over the past few decades. Back in the 1970s there was an increase in energy prices - which started the first movement towards solar panels and similar sustainable technologies. But we can see by 1980, the energy prices were already dropping. Although it appears that energy prices seem to be on the rise once again, we can not rely solely on the price to increase over the next few years, as many critics claim may happen.

Average Retail Price of Electricity Sold by U.S. Electric Power
Industry, 1960-2003 (Chained 2000 Dollars, from EIA)

A valid concern, however, with the specifics of a carbon-tax would be who the tax actually affects. It is one thing to tax the industries and companies directly tied to the fuel sources, but if the tax doesn't affect the consumer to some degree, they will have no monetary incentive to change their current behavior.

In order to meet the goals put forth at the G8 and eventually at COP15, aggressive initiatives need to be put in place to ensure that we make a quick transition to a less carbon-dependent planet. The specifics of such initiatives and whether a carbon-tax would be appropriate for different countries will be left for the experts to decide. But it is encouraging to see that such a plan worked for Sweden and can be used as a case study for other countries.

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