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A new study authored by Dr. Robert Shapiro, formerUnder Secretary of Commerce for Economic Affairs,along with Drs. Nam Pham and Arun Malik, hasanalyzed the environmental and economic conse-quences of adopting a politically-acceptable approachto carbon-based taxes. By applying a new tax to theuse of energy based on its carbon content andreturning 90 percent of the revenues in tax relief forthe people and businesses using the energy andpaying the tax, the U.S. can reduce CO 2 emissions

to levels consistent with protecting the climate andoffset the tax-related costs for most Americans.The remaining 10 percent of the revenues would bededicated to accelerating climate-related researchand development and support for the broaddeployment of climate-friendly technologies.

The study employed the National EnergyModeling System (NEMS), the model also usedby the Department of Energy for its forecasts, toestimate the environmental and economic conse-quences over the next 20 years of applying a

carbon tax strategy that recycles its revenues for taxrelief, and compared the results to those projectedunder business-as-usual conditions by the EnergyInformation Agency (EIA).

A carbon-based tax that would reduce U.S. carbondioxide emissions consistent with a long-term pathto safe levels would require a charge of about $50per metric ton of CO 2 (2005 dollars). Introducing thecarbon-based charge gradually would move business-es and households to prefer less carbon-intensive fuels,

use less energy-intensive technologies and products,and conduct their businesses and lives in other waysthat use less energy. The model found that a tax risingfrom $14-per ton of CO 2 in 2010 to $50 per-ton in2030 would generate about $4 trillion in revenuesover 20 years, of which nearly $3.6 trillion could bereturned to households and businesses. Theserecycled revenues would be sufficient to reduce, onaverage, the annual payroll tax rate for workers andbusinesses by a total of two percentage points. It alsowould reduce CO 2 emissions at least as sharply as

Addressing Climate Change Without Impairing the U.S. Economy Executive Summary

Figure 1. NEMS Estimates of CO 2 Emissions under the Carbon-Based Tax Programand Two Cap-and-Trade Proposals, 1990-2030

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TheEconomics and Environmental Science of Combining a Carbon-BasedTax and Tax Relief

Addressing Climate ChangeWithout Impairing the U.S. Economy:

The U.S. Climate Task Force

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Figure 3. U.S. Energy Consumption, Percentage Difference by Fuel,Carbon-Based Tax Package Versus Business As Usual, 2010 - 2030

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Figure 2. Impact of the Carbon-Based TaxPackage on U.S. CO 2 Emissions

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Addressing Climate Change Without Impairing the U.S. Economy Executive Summary

The U.S. Climate Task Force

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two leading cap-and-trade proposals (Figure 1).By 2030, this strategy would drive down U.S. CO 2

emissions by about 30 percent compared to whatthey would be under the EIAs business-as-usualscenario (Figure 2). American GDP in 2030 would bean estimated $22.3 trillion under this approach, or less

than one percent less than the $22.5 trillion projectedif no action is taken on climate change (2005 dollars).The direct and indirect effects of this approach forcreating an emissions path to preserve the climatealso would have little effect on the economicprospects of average households: U.S. householdswould earn an average of $88,330 per-year under thecarbon-based tax package over this 20-year period,compared to $89,761 under current trends. Theapproach would modestly reduce projected overallenergy use. Its greatest effects, however, wouldinvolve changes in the forms of energy used, shiftinggradually away from carbon-intensive fuels such ascoal, and towards non-carbon based alternative fuelsand less carbon intensive forms of energy (Figure 3).

Every approach to climate change necessarily willinvolve higher energy prices. By capturing those

price increases in a tax, this program can recycle itsrevenues and sharply reduce both the direct costsof the tax for most businesses and people, as wellas moderating many of the indirect costs.

The analysis and projections in the study fairlyestablish that the United States should be able touse this approach to reduce its emissions levelsconsistent with a long-term path to safe levels forthe global climate, at an annual cost of 1.6 percentof an average households annual income.