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

vs.

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 Tax

Price Price
 ...to reflect their true cost.

Cost

Damage Damage

Carbon Tax Carbon Tax

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 Tax Carbon Tax

vs.

Price Price Price

 And because the revenue is returned as compensation...

Cost

Compensation Carbon Tax Carbon Tax

Price Price
 ...most people will be better off monetarily...

Cost

Carbon Tax Carbon Tax

Compensation

Price Price
...and everyone will benefit from reducing the
effects of climate change.