the united states federal government should adopt a carbon tax. february 2016 public forum briefs

Resolved: The United States federal government shouldadopt a carbon tax.

February 2016 Public Forum Briefs*

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Contents

1 VBI 2016 Update 7

2 Topic Analysis by Rebecca Kuang 92.1 Pro Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.2 Con Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3 Argument Guides by Austin Hopkins 173.1 Argument Guide 1: Carbon taxes reduce carbon dioxide emissions . . . . . . . . 17

3.1.1 Reduced emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173.1.2 Responses to Reduced emissions . . . . . . . . . . . . . . . . . . . . . . 20

Innovation halts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Weak Enforcement Possible . . . . . . . . . . . . . . . . . . . . . . . . . 21Won’t reduce in long term . . . . . . . . . . . . . . . . . . . . . . . . . . 22British Columbia example proves only modest reduction . . . . . . . . . 22Carbon leakage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

3.1.3 Defense for Reduced emissions . . . . . . . . . . . . . . . . . . . . . . . 24Defense against “Innovation halts” . . . . . . . . . . . . . . . . . . . . . 24Defense against “Regulations solve” . . . . . . . . . . . . . . . . . . . . 24Defense against “British Columbia benefits were small” . . . . . . . . . . 25

3.2 Argument Guide 2: Carbon taxes are discriminatory . . . . . . . . . . . . . . . . 263.2.1 Regressive tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263.2.2 Responses to Regressive tax . . . . . . . . . . . . . . . . . . . . . . . . . 28

Regressiveness is overstated . . . . . . . . . . . . . . . . . . . . . . . . . 28Can be offset by reinvestment . . . . . . . . . . . . . . . . . . . . . . . . 30Regional Differences even out . . . . . . . . . . . . . . . . . . . . . . . . 31

3.2.3 Defense of Regressive tax . . . . . . . . . . . . . . . . . . . . . . . . . . 323.3 Argument Guide 3: Carbon taxes hurt the economy . . . . . . . . . . . . . . . . 32

3.3.1 Laundry list of negative impacts . . . . . . . . . . . . . . . . . . . . . . 32

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3.3.2 Responses to Negative Impacts . . . . . . . . . . . . . . . . . . . . . . . 36British Columbia had reduced emissions and economic growth . . . . . 36Would Raise Revenue to Benefit US Economy . . . . . . . . . . . . . . . 37

3.3.3 Defense of Negative Impacts . . . . . . . . . . . . . . . . . . . . . . . . 39Defense against “British Columbia economic growth” . . . . . . . . . . . 39Real World Examples prove negative economic impacts . . . . . . . . . . 40Defense Against “Tax Revenue” . . . . . . . . . . . . . . . . . . . . . . . 40Defense Against “National Association of Manufacturers is Biased” . . . 41

3.4 Argument Guide 4: Carbon taxes improve alternative energy growth . . . . . . . 413.4.1 Increased innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413.4.2 Responses to Increased innovation . . . . . . . . . . . . . . . . . . . . . 42

No empirical basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Not designed for spurring innovation . . . . . . . . . . . . . . . . . . . 43Investor Predictability is overstated . . . . . . . . . . . . . . . . . . . . . 43

3.4.3 Defense of Increased Innovation . . . . . . . . . . . . . . . . . . . . . . 44

4 Cards: What’s a Carbon Tax? 464.1 Explanations From Various Sources . . . . . . . . . . . . . . . . . . . . . . . . . 46

4.1.1 Center for Climate and Energy Solutions . . . . . . . . . . . . . . . . . . 464.1.2 World Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464.1.3 Aldy and Stavins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

5 PRO Cards 485.1 Theory Behind Carbon Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 48

5.1.1 An explanation of public goods and externalities . . . . . . . . . . . . . 485.1.2 The Energy Consumption Market is Imperfect . . . . . . . . . . . . . . . 495.1.3 Taxation Can Serve As A Correction . . . . . . . . . . . . . . . . . . . . 505.1.4 A carbon tax eliminates the free rider problem. . . . . . . . . . . . . . . 51

5.2 Link: Carbon Taxation Reduces Fossil Fuel Usage . . . . . . . . . . . . . . . . . 525.2.1 Multiwarrent - Carbon Tax’s Effect on Consumer and Producer Incentives 525.2.2 Carbon Taxation Helps Capture “Low Hanging Fruit” . . . . . . . . . . . 535.2.3 A carbon tax would significantly decrease carbon dioxide emissions. . . . 535.2.4 A carbon tax causes emissions reductions. . . . . . . . . . . . . . . . . . 535.2.5 More evidence on reducing emissions . . . . . . . . . . . . . . . . . . . 545.2.6 Spurring global change . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

5.3 Link: New Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575.3.1 Tesla and other electric cars . . . . . . . . . . . . . . . . . . . . . . . . . 57

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5.3.2 A carbon tax encourages the development of more efficient technology . 595.3.3 We need more energy innovation . . . . . . . . . . . . . . . . . . . . . . 625.3.4 Carbon Tax Could Make Renewables Competitive . . . . . . . . . . . . 625.3.5 Enhanced Oil Recovery/Sequestration . . . . . . . . . . . . . . . . . . . 645.3.6 Alternative Energy Good - Economics . . . . . . . . . . . . . . . . . . . 66

5.4 Reduced Foreign Energy Dependence . . . . . . . . . . . . . . . . . . . . . . . . 675.4.1 Carbon Tax Reduces Foreign Energy Dependence . . . . . . . . . . . . . 675.4.2 Political Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675.4.3 Economic Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

5.5 Environmental Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695.5.1 Fossil Fuel Usage Emits Toxic Gas . . . . . . . . . . . . . . . . . . . . . 695.5.2 Carbon Dioxide Emissions Cause Climate Change . . . . . . . . . . . . 705.5.3 Climate Change Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . 725.5.4 Carbon Dioxide Emissions Cause Resperatory Diseases . . . . . . . . . . 74

5.6 Economic Benefits of the tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 755.6.1 Surface rundown of the revenue related benefits . . . . . . . . . . . . . . 755.6.2 Revenue Raising and The Budget . . . . . . . . . . . . . . . . . . . . . . 775.6.3 The carbon tax allows for general tax cuts that improve overall economic

performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805.6.4 Carbon Tax Could Facilitate Income Redistribution . . . . . . . . . . . . 815.6.5 Income Redistribution Good . . . . . . . . . . . . . . . . . . . . . . . . 82

5.7 Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835.7.1 A carbon tax would benefit the economy overall. . . . . . . . . . . . . . 835.7.2 The social cost of carbon is massive. . . . . . . . . . . . . . . . . . . . . 83

5.8 Carbon tax would start the discussion for more enviromental policies . . . . . . 845.8.1 Carbon taxation could spur political activism, which is desperately needed 84

5.9 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855.9.1 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855.9.2 Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

5.10 Vs. other policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 885.10.1 Compared to misc. regulations . . . . . . . . . . . . . . . . . . . . . . . 885.10.2 Compared to Cap and Trade . . . . . . . . . . . . . . . . . . . . . . . . 895.10.3 Carbon tax is easier than cap and trade . . . . . . . . . . . . . . . . . . . 91

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Contents

6 AT: PRO 936.1 AT: Emissions decline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

6.1.1 Unilateral regulation will not work . . . . . . . . . . . . . . . . . . . . . 936.1.2 A carbon tax won’t make any difference. . . . . . . . . . . . . . . . . . . 966.1.3 A carbon tax can’t mitigate global climate change. . . . . . . . . . . . . . 976.1.4 Emissions reductions will be too slow. . . . . . . . . . . . . . . . . . . . 976.1.5 A carbon tax would not have a significant impact on world temperature. 98

6.2 AT: Progressive Tax/Reduce Income Inequality . . . . . . . . . . . . . . . . . . . 986.2.1 It’s extremely difficult to design a progressive carbon tax . . . . . . . . . 986.2.2 Redistribution may be the reason why income inequality is harmful . . . 996.2.3 Study on Carbon Tax denies this empirically . . . . . . . . . . . . . . . . 99

6.3 AT: Economic Theory Recommends the Carbon Tax . . . . . . . . . . . . . . . . 1016.3.1 Even if a carbon tax works in theory, it does not in practice . . . . . . . . 101

6.4 AT Economic Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1026.4.1 The carbon tax would introduce a number of perverse effects into the

economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1026.4.2 Various sources show that the carbon tax would undermine the economy

at the persona, household, industrial, and macroeconomic levels . . . . . 1036.5 AT: Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

6.5.1 AT Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076.5.2 AT British Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

6.6 AT IPCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1096.6.1 The last IPCC report indicated that aggressive emission cutbacks would

cause more harm than good. . . . . . . . . . . . . . . . . . . . . . . . . 1096.6.2 IPCC forecasts are unreliable. . . . . . . . . . . . . . . . . . . . . . . . . 109

6.7 AT Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1106.7.1 A revenue neutral deal is very unlikely. . . . . . . . . . . . . . . . . . . . 1106.7.2 The tax base will be shifted onto something we are trying to reduce. . . . 1106.7.3 A carbon tax is not revenue-neutral on its way back down. . . . . . . . . 1106.7.4 The carbon tax will be incredibly inefficient. . . . . . . . . . . . . . . . . 1116.7.5 Revenue neutrality is unrealistic. . . . . . . . . . . . . . . . . . . . . . . 111

6.8 AT Tax Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1126.8.1 The tax benefits argument gets things backwards. . . . . . . . . . . . . . 112

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Contents

7 CON 1147.1 Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

7.1.1 California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1147.2 Economic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1147.3 Surface Rundown of Various Harms . . . . . . . . . . . . . . . . . . . . . . . . . 114

7.3.1 Carbon Tax Hurts Growth . . . . . . . . . . . . . . . . . . . . . . . . . 1167.3.2 Carbon Tax Hurts the American Energy Industry . . . . . . . . . . . . . 1197.3.3 A carbon tax harms rural areas and industrial production. . . . . . . . . 1207.3.4 Carbon Tax Hurts the Poor . . . . . . . . . . . . . . . . . . . . . . . . . 121

7.4 Political Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1237.4.1 Tradeoff with other regulations . . . . . . . . . . . . . . . . . . . . . . . 123

7.5 The Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1237.5.1 Various Sources Discussing Carbon Leakage . . . . . . . . . . . . . . . . 1237.5.2 More on Carbon Leakage . . . . . . . . . . . . . . . . . . . . . . . . . . 125

8 AT: CON 1278.1 AT: Conservative Backlash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

8.1.1 Conservatives should support a carbon tax. . . . . . . . . . . . . . . . . 1278.1.2 The alternative to a carbon tax is even worse. . . . . . . . . . . . . . . . 127

8.2 AT: Social Cost Impossible To Calculate . . . . . . . . . . . . . . . . . . . . . . 1288.2.1 Emissions reduction target based taxes are more plausible . . . . . . . . 128

8.3 AT: Carbon Leakage/Others Pollute . . . . . . . . . . . . . . . . . . . . . . . . . 1298.3.1 US’s Share of Global Fossil Fuel Consumption Is Enormous . . . . . . . 1298.3.2 US needs to signal commitment . . . . . . . . . . . . . . . . . . . . . . 1298.3.3 The leakage argument is overstated. . . . . . . . . . . . . . . . . . . . . 1308.3.4 Carbon Taxation Does Far More For The Environment Than Reduce Do-

mestic Energy Consumption . . . . . . . . . . . . . . . . . . . . . . . . 1318.4 AT: Economic Harms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

8.4.1 Citi Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1328.5 AT: Regressive Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

8.5.1 A carbon tax can be designed to be pro-poor through a lumpsum rebate. 1338.5.2 Regressive taxes could be fixed through a tax swap. . . . . . . . . . . . . 133

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1 VBI 2016 Update

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1 VBI 2016 Update

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2 Topic Analysis by Rebecca Kuang

Rebecca Kuang is studying International Economics at the Georgetown UniversitySchool of Foreign Service. In Lincoln-Douglas debate, she won the 2013 Tourna-ment of Champions, National Debate Coaches Tournament, Texas Forensics StateAssociation Tournament, the Harvard University Round Robin, the New York CityInvitational, the Emory University Barkley Forum for High School Students, andsome other tournaments. As an assistant coach for Greenhill, her alma mater, herstudents have reached elimination rounds at or won multiple national and regionaltournaments including the Tournament of Champions, TFA State, Berkeley, Emory,and the Glenbrooks. She attended the Victory Briefs Institute twice as a student andis now a VBI curriculum director.

A carbon tax is a fee assessed on the carbon content of fuels. As The Carbon Tax center explains,fossil fuels release carbon dioxide each time they are burned. Carbon dioxide is non-lethal tohumans, but once large amounts of it are released into the atmosphere, it can trap heat re-radiatedfrom Earth’s surface and contribute to global warming and other forms of harmful climate change.But alternative forms of energy like wind, solar, and nuclear, do not convert carbon to carbondioxide, so a carbon tax is essentially a tax on the use of fossil fuels, and only fossil fuels.1

The logic behind a carbon tax is quite simple. The carbon tax was proposed as a free market solu-tion around the problem of carbon emissions as a negative externality. In economics, a “negativeexternality” is a cost suffered by a third party as a result of an economic transaction, so that theparties conducting the transaction do not have to pay the full cost of the decision. If a good has anegative externality, then the cost to society is greater than the cost the consumer is paying for it.This is a problem because entities make decisions based on costs and benefits, but will leave nega-tive externalities out of their calculus. This sounds complicated, but it’s really quite simple: when,for example, a manufacturing company is making a decision whether to use fossil fuels or otherforms of energy, it won’t factor in the costs of harm to the environment because it isn’t paying forit immediately. Thus the manufacturing company will likely choose to burn fossil fuels, since it’soften a cheaper option than renewable energy.

1Carbon Tax Center, “What’s a carbon tax?”, 2015, http://www.carbontax.org/whats-a-carbon-tax/

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A carbon tax is an attempt to right this equation. Now that negative externality has a price. When-ever the manufacturing company burns a certain amount of fossil fuels, they are paying for it outof pocket, instead of letting society reap the harms.

The first place to look for evidence of a successful carbon tax is the status quo in regards to thispolicy. Which countries current have a carbon tax, and has it been successful? The evidenceis mixed. Carbon is taxed in Ireland, Finland, Australia, Chile, Sweden, and a couple of othernations. But according to sociology professor Monica Prasad, the tax has not led to large declinesin emissions in most of these countries. In fact, emissions have actually gone up by 43 percentper capita in Norway since the 1990s. Denmark, where carbon emissions were 15% lower in 2005than in 1990, is the exception. Prasad attributes Denmark’s success to the following:

What did Denmark do right? There are many elements to its success, but taken to-gether, the insight they provide is that if reducing emissions is the goal, then a car-bon tax is a tax you want to impose but never collect. This is a hard lesson to learn.The very thought of new tax revenue has a way of changing the priorities of the mosthard-headed politicians — even Genghis Khan learned to be peaceful, the story goes,when he saw how much more rewarding it was to tax peasants than to kill them. Butif we want lower emissions, the goal of a carbon tax is to prompt producers to changetheir behavior, not to allow them to continue polluting while handing over cash tothe government. How do you get them to change? First, you prevent policy mak-ers from turning the tax into a cash cow. Carbon tax discussions always seem todevolve into gleeful suggestions for ways to spend the revenue. Reduce the incometax? Give the money to low-income consumers? Use it to pay for health care? Ev-eryone seems to forget that the amount of revenue is directly tied to the amount ofpollution that is still going on. Denmark avoids the temptation to maximize the taxrevenue by giving the proceeds back to industry, earmarking much of it to subsidizeenvironmental innovation. Danish firms are pushed away from carbon and pulledinto environmental innovation, and the country’s economy isn’t put at a competi-tive disadvantage. So this is lesson No. 1 from Denmark. The second lesson is thatthe carbon tax worked in Denmark because it was easy for Danish firms to switchto cleaner fuels. Danish policy makers made huge investments in renewable energyand subsidized environmental innovation. Denmark back then was more reliant oncoal than the other three countries were (but not more so than the United States istoday), so when the tax gave companies a reason to leave coal and the investmentsin renewable energy gave them an easy way to do so, they switched. The key was

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providing easy substitutes.2

So the carbon tax is unlikely to be a successful policy on its own, and must be wedded to a broadercommitment to environmental protection. Keep that in mind before making more promises onthe pro than you can keep.

2.1 Pro Approaches

The obvious and clear-cut approach to a pro case is to argue the following: global warming is aproblem, we’re all going to die soon if we don’t do something, carbon emissions contribute in a bigway to global warming, and a carbon tax would go a long way in cutting carbon emissions. Theevidence is fairly straightforward that in countries where a carbon tax is implemented, carbondioxide emissions do go down:

Figure 3 shows carbon dioxide emissions in the reference case without a carbon taxand in the tax cases. The carbon tax has a significant effect on carbon dioxide emis-sions. The reference is very similar to recent EIA projections that show little growthin emissions through 2030/2035. After that we begin to see a pick - up in emissionsas the economy continues to grow , and some of the effects of new fuel economystandards are fully realized, and then resume growth with economic activity. In thepolicy cases emissions are 14% below 2006 emissions in 2020, and they continue todrift down over time to about 20% below 2006 in 2050. Those cases with the invest-ment tax credit lead to higher economic activity and somewhat higher emissions inlater years but this effect is very small — about a 0.6% difference in 2050.3

Environmental arguments should certainly be a large brunt of your pro case. But the more in-teresting arguments, I think, are the economic ones. A carbon tax, as the name implies, meansenforcing a new tax policy, and that means changing revenue and tax policy in interesting ways.Some carbon tax advocates think that a carbon tax could replace other forms of taxes like incometaxes, or could be a new source of revenue for the federal government altogether. Rausch andReilly of MIT explain that a carbon tax might be able to resolve the budget deficit:

The U . S . faces the challenge of bringing its Federal budget deficit under control.There is general recognition that to do so will likely require both difficult budget cuts

2Monica Prasad, [assistant professor of sociology and a faculty fellow at the Institute for Policy Research at North-western University], “On Carbon, Tax and Don’t Spend,” The New York Times, March 25, 2008.

3Sebastian Rausch and John Reilly, [Massachusetts Institute of Technology], “Carbon Tax Revenue and the BudgetDeficit: A Win-Win-Win Solution?” MIT Joint Program on the Science and Policy of Global Change, August 2012.

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and enhancements to revenue. One option for revenue enhancement suggested in anearlier Congressional Budget Office (CBO) analysis is the introduction of a carbontax starting at $20 per ton and r ising gradually over time. The CBO estimated thatsuch a carbon tax could raise about $1.25 trillion over the 2012 – 2022 period. Wesimulated a similar carbon tax starting in 2013, given that a start in 2012 is no longerrealistic. We find a similar, if somewhat higher 10 - year revenue gain of about $1.5trillion. We have slightly higher revenue at the start of the period because we find alittle less abatement, and thus higher emissions. Because the period is extended wea lso gain from adding in revenue from the year 2023, when the carbon price andrevenue is considerably higher than it would have been in 2012.ˆ [Sebastian Rauschand John Reilly, [Massachusetts Institute of Technology], “Carbon Tax Revenue andthe Budget Deficit: A Win-Win-Win Solution?” MIT Joint Program on the Scienceand Policy of Global Change, August 2012.]

The issue is a little more complicated than that. Many authors are concerned that such a taxwould be regressive–this means that the lower your income, the more you are taxed. (This isthe opposite of a progressive tax, which taxes a higher percentage of the incomes of people withhigher incomes). A lot of conservative authors spin this to argue that a carbon tax would in effectpunish the poor, since they spend more on things that require fossil-fuel energy:

The poor tend to spend a higher proportion of their earnings on energy, particularlyutilities and transportation. Moreover, some Americans use more fossil-fuel energythan others because of driving distances (rural families drive more—27,700 milesper household vs. 17,600 miles for urban households[44]); geography (less temper-ate weather means more heating and cooling costs); and already constructed energyinfrastructure (coal plants are prevalent in the Midwest near mining operations). Acarbon tax would disproportionately hit these families, whose behavior is difficultto change in the short run. While economists like to imagine that the carbon taxwould be offset by reductions in taxes on capital or some other particularly econom-ically damaging tax, the fact is that, politically, it is far more likely that funding fromthe carbon tax would be used to reduce the tax’s impact on the poor. Senator Bar-bara Boxer (D–CA), who chairs the Senate Committee on Environment and PublicWorks, rejected the idea of using new revenue from the carbon tax to reduce corpo-rate taxes—a favorite idea among some on the center-right—and said that any rev-enues should be used “to make sure…the middle class gets the breaks in the interimwhile we move to clean energy.”⁴

⁴Derrick Morgan, [Vice President for Domestic and Economic Policy at the Heritage Foundation], “A Carbon Tax

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There are, however, ways to make a carbon tax progressive, or at the very least not regressive.All that revenue from the tax can be used to pad the tax for low-income groups. And if thegovernment were making revenue from the carbon tax, it could reduce income tax elsewhere,so the poorest families end up paying less than they otherwise would. The National Bureau ofEconomics Research makes some suggestions:

The authors calculate that a $15 tax per ton of carbon dioxide would raise as much as$79 billion a year. Congress could use some of those revenues to mitigate the regres-sive effects of the tax. For example, an income tax break of $119, $112, $105, and $76to individuals in the first four income quintiles, respectively, would balance the bur-den to about 1 percent of net annual income for each group, and still leave nearly $50billion in government revenues, the authors calculate. Or, the revenue could alleviatethe burden of other regressive taxes, such as the payroll tax. “A price on carbon couldyield substantial government revenues, and careful recycling of these revenues couldoffset the regressive nature of a national GHG [greenhouse-gas] emissions policy.”⁵

Finally, you should go beyond the “carbon tax-> lower emissions” logic and spin out the broaderranging effects of a carbon A carbon tax could effect some pretty cool things in the long run:as companies seek less expensive alternatives to paying the carbon tax, they might invest morein clean energy, which would advance the technology for renewables. If a carbon tax led to re-ductions in corporate and income tax, it could promote economic activity and result in overallgrowth. Adele Morris of the Brookings Institute explains the far-reaching benefits of a carbontax.⁶

The revenues from the new levy could fund permanent reductions in more distor-tionary taxes on capital income while also contributing to deficit reduction. Andby providing simple, transparent, but powerful market-based incentives to reducedamaging greenhouse gas (GHG) emissions, this levy could supersede the array ofcostly regulatory command-and-control approaches and expensive subsidies aimedat reducing dependence on fossil fuels and promoting clean energy. In addition tothese benefits, of course, is a contribution to stemming the global buildup of GHGsand improving the United States’ standing to foster the broader international actionnecessary to stabilize GHG concentrations and avoid catastrophic climate disrup-tion. As this proposal shows, with a carbon tax these gains are possible with less-

Would Harm U.S. Competitiveness and Low-Income Americans Without Helping the Environment,” HeritageFoundation Research Report, 2012.

⁵NBER, “How Regressive is a Price on Carbon?”, http://www.nber.org/digest/jan10/w15239.html.⁶Adele Morris, [senior fellow and the policy director for the Climate and Energy Economic Project, Brookings], “The

Many Benefits of a Carbon Tax,” Brookings Policy Proposal, February 26, 2013.

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adverse, potentially even positive, consequences for economic activity, unlike otherrevenue raisers. Indeed, within twenty years a modest carbon tax can reduce annualemissions by 12 percent from baseline levels, generate enough revenue to lower thecorporate income tax rate by 7 percentage points, and decrease the deficit by $815billion, all while protecting the poorest households from undue burden.

2.2 Con Approaches

At first glance it seems pretty difficult to negate on this topic. How do you argue that we shouldn’ttry to save the environment? There are, of course, experts that argue against the relevance of cli-mate change. They usually point to the fact that the world has been through warming and coolingcycles before, or they shoot holes in the IPCC’s methodology. Though you can certainly arguethat climate change is not a problem, or that rising levels of carbon dioxide emissions won’t harmthe environment, I don’t suggest this strategy. It’s purely defensive, which means your opponentwins if they prove that there is a risk that climate change is harmful (and it’s very hard to prove100% that climate change is not a problem.) This strategy also goes against the intuition of mostjudges, so you’ll be fighting an uphill battle for most of the debate.

A more strategic con case concedes that global warming is a problem, and that we should dosomething about it (thus taking out a majority of pro offense.) You should then argue that acarbon tax is not the best way to solve climate change–and in fact, might make the problem evenworse. There are a couple of ways you can prove this.

First, you can concede that carbon tax might be a good idea in theory, but that it won’t work if itis imposed unilaterally–if the United States is the only country that implements a carbon tax. TheUS has a massive carbon footprint, but even if we lowered US carbon emissions, this might stillonly be a drop in the bucket. Developed countries like the United States have much lower carbonemissions than developing giants, like China and India. And good luck convincing developingcountries to sacrifice economic growth for the environment. (An aside: this issue, called “dif-ferentiated responsibility,” has come up a lot in negotiations of environmental protection.) Sure,China has made a lot of commitments to reducing its carbon footprint, but who really thinks thatChina will sacrifice economic growth to implement something like a carbon tax?

This argument is not just defensive. We can also argue that a unilateral carbon tax makes thingsworse by incentivizing carbon-intensive industries to pack up and move to countries with laxenvironmental standards. Once these industries relocate, they might emit even more emissionsthan before. Derrick Morgan of the Heritage Foundation explains:

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The EPA analyzed a cap-and-trade proposal and projected global CO2 concentra-tions in a baseline and under legislation, demonstrating the effects graphically.[16](See Chart 1.) The Administrator of the EPA testified on July 7, 2009: “I believe thecentral parts of the [EPA] chart are that U.S. action alone will not impact world CO2levels….”[17] The analysis showed that even if the U.S. adopted stringent carbon capsunder that legislation[18] and the international community did not, global CO2 con-centrations would decrease 25 parts per million (with concentrations equaling 694ppm in 2095). International action, by contrast, would decrease concentrations by202 ppm. Just as in a unilateral U.S. cap-and-trade system, a unilateral U.S. carbontax would likely further increase foreign emissions because of a phenomenon called“carbon leakage.” As energy-intensive industry relocates from the United States toother nations such as Mexico, Vietnam, or China (already the world’s largest emitterof greenhouse gases), GHG emissions and toxic pollutants could increase more thanthey would if those industries remained in the United States.[19]⁷

One more con avenue of attack is environmental politics. One warning signal should be thatcompanies like Exxon are hugely in support of a carbon tax. But a more nefarious reason is thatif they make concessions on a carbon tax, it will be far more difficult to push other forms ofenvironmental protection too.

Exxon has been supporting a carbon tax (notionally) for several years, but it’s madeclear that it sees such a tax as “an alternative to costly regulation.” This is what every-one’s favorite dirty-energy lobbyist Frank Maisano recently wrote (behind a paywall):No carbon tax should be considered before serious regulatory reform is undertaken.The U.S. EPA is moving forward on an approach that regulates carbon, which is akinto fitting a square peg in a round hole. Not only is it legally dubious, but it is notlikely not work in practice, either. Suffice to say, the fossil fuel lobby would nevergive a carbon tax their OK unless EPA regulations on carbon (and possibly otherpollution regs) were scrapped. We saw this fight play out once already, around thecap-and-trade bill. Unless it was for a high-and-rising tax (which is unlikely), thatwould be a terrible trade for greens. The implicit carbon price in EPA regs is higherthan an explicit tax would likely be. In developing regulations, EPA uses the govern-ment’s official “social cost of carbon,” which is around $26/ton. There’s good reasonto think that figure is dramatically too low. But it is already higher than a politically

⁷Derrick Morgan, [Vice President for Domestic and Economic Policy at the Heritage Foundation], “A Carbon TaxWould Harm U.S. Competitiveness and Low-Income Americans Without Helping the Environment,” HeritageFoundation Research Report, 2012.

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realistic carbon tax.⁸

Adopting a carbon tax, then, might be like making a deal with a devil. We should be absolutelysure that a carbon tax would solve environmental woes before sacrificing other forms of environ-mental protection. If a carbon tax means sacrificing stricter and more effective regulations, thenit seems like a bad idea.

⁸David Roberts, [Grist staff writer], “10 reasons a carbon tax is trickier than you think,” Grist, 19 November 2012,http://grist.org/climate-energy/ten-reasons-a-carbon-tax-is-trickier-than-you-think/.

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3 Argument Guides by Austin Hopkins

Austin debated for four years at Trinity Prep (FL), where he served as team captainhis senior year. During his debate career, he reached the octafinals at Tournamentof Champions, broke at several bid qualifying tournaments, and qualified to NSDAand NCFL Nationals.

3.1 Argument Guide 1: Carbon taxes reduce carbon dioxide emissions

This is one of the most basic arguments on the topic. It argues that a carbon tax will reduce carbondioxide emissions. That idea is not particularly controversial, the only questions are how muchand what other effects will occur. I’ve left the impact debate (global warming) out of this guidesince it’s easier to research and more likely to already be familiar to you.

3.1.1 Reduced emissions

This will go through some empirical examples of reduced emissions and some theoretical models.

Australia gives an empirical example of reduced emissions.

[Marianna O’Gorman and Frank Jotzo, Australian National University, “Impact of the CarbonPrice on Australia’s Electricity Demand, Supply and Emissions”, July 17 2014]

Australia’s carbon price has been in operation for two years. The electricity sectoraccounts for the majority of emissions covered under the scheme. This paper exam-ines the impact of the carbon price on the electricity sector between 1 July 2012 and30 June 2014, focusing on the National Electricity Market (NEM). Over this period,electricity demand in the NEM declined by 3.8 per cent, the emissions intensity ofelectricity supply by 4.6 per cent, and overall emissions by 8.2 per cent, compared tothe two-year period before the carbon price. We detail observable changes in powerdemand and supply mix, and estimate the quantitative effect of the effect of the car-bon price. We estimate that the carbon price led to an average 10 per cent increase in

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nominal retail household electricity prices, an average 15 per cent increase in indus-trial electricity prices and a 59 per cent increase in wholesale (spot) electricity prices.It is likely that in response, households, businesses and the industrial sector reducedtheir electricity use. We estimate the demand reduction attributable to the carbonprice at 2.5 to 4.2 TWh per year, about 1.3 to 2.3 per cent of total electricity demand inthe NEM. The carbon price markedly changed relative costs between different typesof power plants. Emissions-intensive brown coal and black coal generators reducedoutput and 4GW of emissions-intensive generation capacity was taken offline. Weestimate that these shifts in the supply mix resulted in a 16 to 28kg CO2/MWh reduc-tion in the emissions intensity of power supply in the NEM, a reduction between 1.8and 3.3 per cent. The combined impact attributable to the carbon price is estimatedas a reduction of between 5 and 8 million tonnes of CO2 emissions (3.2 to 5 per cent)in 2012/13 and between 6 and 9 million tonnes (3.5 to 5.6 per cent) in 2013/14, andbetween 11 and 17 million tonnes cumulatively. There are fundamental difficultiesin attributing observed changes in demand and supply to specific causes, especiallyover the short term, and in this light we use conservative parameters in the estima-tion of the effect of the carbon price. We conclude that the carbon price has workedas expected in terms of its short-term impacts. However, its effect on investmentin power generation assets has probably been limited, because of policy uncertaintyabout the continuation of the carbon pricing mechanism. For emissions pricing tohave its full effect, a stable, long-term policy framework is needed.

For something a bit more readable and less overwhelming, here are some excerpts from the con-clusion.

This is the Australia breakdown specific to emissions:


We estimate that the combined impact attributable to the carbon price was a reduc-tion of between 5 and 8 million tonnes of CO2 emissions (3.2 to 5 per cent) in 2012/13and between 6 and 9 million tonnes (3.5 to 5.6 per cent) in 2013/14. In cumulativeterms, this represents an 11 to 17 million tonne reduction over the two years fol-lowing 1 July 2012. All of these estimates are subject to fundamental difficulty inattributing observed changes to a particular cause, in particular over a short periodof time. We have used conservative assumptions in deriving our estimates.

And this is for electricity demand:

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We have provided an assessment of the effect of Australia’s carbon price on electricitydemand and supply in the National Electricity Market (NEM). The analysis coversthe period 1 July 2012 to 30 June 2014, the first two years of operation of the scheme.Over this period, electricity demand in the NEM declined by 3.8 per cent, the emis-sions intensity of electricity supply declined by 4.6 per cent, and overall emissions by8.2 per cent, compared to the two-year period before the introduction of the carbonprice.

Now, for some United States specific examples…

This projection is based on a fifteen dollar initial rate that steadily rises, which is a system com-monly seen in previously proposed carbon taxes.

[Warwick J. McKibbin, Adele C. Morris, Peter J. Wilcoxen and Yiyong Cai, Brookings Institution,“The Potential Role of a Carbon Tax is U.S. Fiscal Reform”, 2014]

This paper examines fiscal reform options in the United States using an intertemporalcomputable general equilibrium model of the world economy called G-Cubed. Sixpolicy scenarios explore two overarching issues: (1) the effects of a carbon tax underalternative assumptions about the use of the resulting revenue, and (2) the effects ofalternative revenue sources to reduce the budget deficit. We examine a simple excisetax on the carbon content of fossil fuels in the U.S. energy sector starting immedi-ately at $15 per ton of carbon dioxide (CO2) and rising at 4 percent above inflationeach year. We investigate policies that allow the revenue from the illustrative carbontax to reduce the long run federal budget deficit or the marginal tax rates on laborand capital income. We also compare imposing a carbon tax to increasing rates ofother taxes to reduce the deficit by the same amount. We find that within 25 years ofadopting the carbon tax, annual CO2 emissions are 20 percent lower than baselinelevels. We find that using the revenue for a capital tax cut is significantly differentthan other revenue recycling policies. In that case, investment rises, employment andwages rise, and overall GDP is significantly above its baseline through year 25. Thus,adopting a carbon tax and using the revenue to reduce capital taxes would achievetwo goals: reducing CO2 emissions significantly and expanding employment andthe economy.

Moreover, across several models, it is agreed that there would be significant reduction in emis-sions:

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[Donald Marron, Eric Toder, and Lydia Austin, “Taxing Carbon: What Why and How”, UrbanInstitute and Brookings Institution, June 2015]

Despite these modeling differences, there is broad consensus that a carbon tax wouldreduce emissions. Several years ago, the Congressional Budget Office (CBO) re-viewed carbon tax studies and concluded that a $25 per ton of CO2-equivalent chargeon greenhouse gas emissions from electricity, manufacturing, and transportation,rising 2 percent faster than inflation, would cut covered emissions by 10 percent inits first decade.21 Emissions reductions from a $25 tax, rising at 2 percent real, wouldthus be somewhat larger than those from the Clean Power Plan, but they would be farshort of President Obama’s reduction target for 2025.22 Achieving the 2025 goal witha tax alone would require a significantly higher-starting tax rate, faster escalation, ora combination of the two.

In the long term, these reductions can become quite substantial:

[No Author, “Economic Outcomes of a U.S. Carbon Tax”, National Association of Manufacturers,2013]

As illustrated in Figure 4, in the $20/ton case, CO2 emissions would be reduced byabout 1,800 million metric tons by 2053, a 31 percent reduction relative to 2005 emis-sions levels and far short of the 80 percent reduction targeted by previous climatelegislative proposals. The 80 percent reduction case would, by design, result in sub-stantially greater emissions reductions. By 2053, the carbon tax would reduce CO2emissions by about 70 percent relative to 2005 emissions.

3.1.2 Responses to Reduced emissions

Innovation halts

Global emissions might be raised because the carbon tax would lower the incentive for US inno-vation to bring alternative energy prices low enough for use in developing countries like India orChina, thus increasing net worldwide emissions.

[Adam Ozimek, “Dirty Energy Taxes And Clean Energy Innovation”, Forbes, March 22 2015]

However, a carbon tax would raise the threshold in the US relative to the thresholdfor developing countries. In other words, the race for solar companies in the U.S.becomes to be cheaper than dirty energy + a carbon tax, which is a higher threshold

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than being cheaper than dirty energy alone, which is the threshold in many develop-ing countries.

It is easy to see how this could cause downward march in solar costs to slow, andas a result solar would reach the threshold for China, India, and other developingcountries perhaps much much later.

If this is true, it would suggest that for clean energy to become globally dominantfaster it’s better for the U.S. to just subsidize solar innovation and let the untaxed U.S.market price of dirty energy stand as a strong incentive for solar to drive costs lower.

In this way, a carbon tax could make global warming worse.

Weak Enforcement Possible

Norway’s attempt at a carbon tax was much less effective because of weak enforcement mecha-nisms and loopholes.

[Annegrete Bruvoll and Bodil Merethe Larsen, “Greenhouse gas emissions - do carbon taxeswork?”, Statistics Norway, 2008]

During the last decade, Norway has carried out an ambitious climate policy by imple-menting a relatively high carbon tax already in 1991. The Norwegian carbon taxes areamong the highest in the world. Data for the development in CO2 emissions providea unique opportunity to evaluate carbon taxes as a policy tool for CO2 abatement.We combine a divisia index decomposition method and applied general equilibriumsimulations to decompose the emission changes, with and without the carbon taxes,in the period 1990-1999. We find that despite significant price increases for somefueltypes, the carbon tax effect on emissions was modest. The taxes contributed toa reduction in onshore emissions of only 1.5 percent and total emissions of 2.3 per-cent. With zero tax, the total emissions would have increased by 21.1 percent overthe period 1990-1999, as opposed to the observed growth of 18.7 percent. This sur-prisingly small effect relates to the extensive tax exemptions and relatively inelasticdemand in the sectors in which the tax is actually implemented. The tax does notwork on the levied sources, and is exempted in sectors where it could have worked.

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Won’t reduce in long term

It is possible that there is only a limited amount that it is possible to cut back, and that impliesthat there is a limit to how low resources can go. This is especially true since carbon is the basisof many needs, like energy.

[Brad Plumer, “Would a carbon tax cut emissions drastically? Not on its own.”, Washington Post,November 20 2012]

But not everyone’s convinced. Over at the Brookings Institution, Mark Muro recentlyargued that a carbon tax, by itself, might not be enough to make a significant dentin U.S. global-warming emissions. Sure, in the near term people would cut backon fossil fuel use and companies would find innovative ways to reduce emissions.This is what appears to be happening in British Columbia, which levied a carbonfee in 2008. That’s a start. But modern economies are so heavily dependent on fossilfuels that there’s only so much we can reasonably cut back. Alternatives aren’t readilyavailable yet.

British Columbia example proves only modest reduction

Even without taking into account carbon leakage, the reduction in British Columbia fuel con-sumption (often a key example of reduced emissions) was only modest.

[Robert P. Murphy Patrick J. Michaels Paul C. Knappenberger, “The Case Against a Carbon Tax”,CATO Institute, September 4, 2015]

Another significant point is that even if not a statistical artifact, the apparently largereduction in B.C. emissions was only temporary. The studies trumpeting the potencyof B.C.’s carbon tax went only up through 2012 data. However, officially reported B.C.gasoline sales increased sharply in 2013 and 2014, such that as of 2014, annual percapita B.C. gasoline sales were down only 2 percent compared to 2007, which wasonly a percentage point lower than the rest of Canada.56 (See Figure 5.) On thiscriterion it seems B.C.’s carbon tax had a very weak long‐term impact on gasolineconsumption, even if we ignore the significant “leakage” problem.

Carbon leakage

Carbon leakage refers to the “where?” question I posed above. That is, if one jurisdiction imposesa carbon tax, then carbon products will be manufactured or purchased in other jurisdictions.

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British Columbia may indicate the possible extent of carbon leakage.

[Robert P. Murphy, Patrick J. Michaels, Paul C. Knappenberger, “The Case Against a Carbon Tax”,CATO Institute, September 4, 2015]

One popular 2012 econometric analysis of the B.C. episode concluded that its carbontax reduced emissions from gasoline about five times as much as would be expectedfrom comparable, market‐induced increases in gasoline prices.54 The authors hy-pothesize that this result is due to B.C. residents being willing to cut back on drivingin the effort to mitigate climate change, so long as their fellow B.C. residents can’tfree ride off their sacrifices. The problem with this theory, however, is that it wouldindicate very poor reasoning on the part of B.C. residents: the rest of the world, notsubject to B.C.’s carbon tax, can still free ride off of any B.C. cutbacks.

A much more plausible explanation for the econometric results is that B.C. residentsare (at least partially) buying gasoline in other jurisdictions. Note that a marketin-duced rise in pump prices in B.C. would not lead to this effect, because presumablygas prices in neighboring Alberta (on B.C.’s eastern border) or Washington State (tothe south) would be affected too by a change in the world supply and demand. How-ever, when B.C. residents see their gas prices rise because of the B.C. carbon tax,then (other things equal) we would expect gasoline in other jurisdictions to becomerelatively more attractive.

Here is a more analytic description of carbon leakage so that you can have a sourced description.

[Larry Parker and John Blodgett, “Carbon Leakage and Trade: Issues and Approaches”, Congres-sional Research Service, December 19 2008]

The second problem is a longer-term possibility that future investments by green-house gasintensive industries could be channeled to countries with no (or less strin-gent) carbon controls, circumventing carbon reduction needs and potentially lock-ing in obsolete technology. This relocation and construction of new facilities withoutcarbon control could make future reductions more difficult and expensive.

Now, for some quantification of US estimates:


EPA also conducted a sensitivity analysis assuming no greenhouse gas reductions bynon-Annex 1 countries through 2050. Under this scenario, leakage of U.S. reduc-

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tions were estimated at about 11% in 2030, and 8%-9% in 2050.9 EPA notes that partof the reason for the somewhat modest leakage rates estimated by the model is thesignificant demand by Annex I countries for international credits from non-AnnexI countries, reducing their emissions.

3.1.3 Defense for Reduced emissions

Defense against “Innovation halts”

Depending on how the money raised from taxes is used, it could fund innovation in clean energy.

[Adam Ozimek, “Dirty Energy Taxes And Clean Energy Innovation”, Forbes, March 22 2015]

There are some alternatives to this view though. First, is that taxing dirty energyand using all the money for subsidies of clean tech innovation is really more efficientthan subsidies without taxes. And after all, the money for subsidies will need to comefrom somewhere. In addition, one can imagine that economies of scale and learningby doing are extremely important in this industry. This would mean solar companiestaking over the U.S. market will accelerate the decline of costs and speed up the pointwhere it becomes cost competitive for the rest of the world.

Defense against “Regulations solve”

A single tax is more efficient and easier to administer than a combination of regulations.

[Eric Pianin, “A Carbon Tax to Combat Global Warming is Getting a Fresh Look”, The FiscalTimes, July 5, 2015]

The authors argue that finding a way to restrict carbon emissions of literally mil-lions of businesses, consumers and government agencies through piecemeal federaland state regulatory measures will be difficult and needlessly costly under almostany circumstances. What’s more, direct regulation by the Environmental ProtectionAgency and other government entities does little to reward innovation beyond regu-latory minimums, they say.

By contrast, pursuing market-based approaches that place a fixed price on carbonemissions “would allow the market to do what it does best: encourage consumers

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and businesses to reduce emissions at the lowest cost and provide an ongoing incen-tive for innovators to develop new ways to reduce carbon emissions,” the Tax PolicyCenter report declared.

Defense against “British Columbia benefits were small”

This study compares British Columbia’s fuel use since the induction of a carbon tax to the rest ofCanada and ties it to the carbon tax.

[Dr. Stewart Elgie, Professor at the University of Ottawa and Jessica McCarthy, Faculty of Law atthe University of Ottawa, “BC’s Carbon Tax Shift After Five Years: Results: An Environmental(and Economic) Success Story”, Canadian Public Policy, July 2013]

To better decipher what role the carbon tax played in these changes, it is also helpfulto look at trends before July 2008. If the tax was a major driver of the post-2008changes, we would expect to see that the rate of change in fuel use in BC compared tothe rest of Canada declined more sharply in 2008-12 than in 2000-2008. And indeedthat is what occurred. From 2000 to 2008, average per capita fuel consumption in BCdeclined by 0.1 percent per year less than in the rest of Canada; whereas from 2008-12 it declined by 5.0 percent per year more than in the rest of Canada – a substantialdifference (Figure 1). So, while BC was doing about as well as the rest of Canada inreducing fuel use before 2008, it has done much better since the carbon tax came in– suggesting that the tax was an important contributor to BC’s success in reducingfuel use in the past four years.

Some more aggregated statistics:


From 2008 to 2011, BC’s per capita GHG emissions associated with carbon taxedfuels declined by 10.0 percent, a substantial reduction. During this period, BC’s re-ductions outpaced those in the rest of Canada by almost 9 percent (Table 2). TheseGHG reductions were similar to those seen in fuel use during this same 2008-11 timeperiod.

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3.2 Argument Guide 2: Carbon taxes are discriminatory

3.2.1 Regressive tax

The poor spend more of their income on carbon based products (namely, energy), so an increasein the costs of energy disproportionately affects them.

[Laurent Belsie, “How Regressive is a Price on Carbon?”, National Bureau of Economic Research,July 2010]

Previous research already has suggested that a carbon tax would probably be regres-sive. This study furthers the analysis by making three key points. First, by linkingthe amount of carbon emissions from each industry to consumer expenditures byincome group, the authors show that consumption differences explain the regressiv-ity of a carbon tax. Assuming a levy of $15 per ton of carbon dioxide, which is inthe range of current proposals in Congress, the authors calculate that the one-fifthof households at the bottom of the income distribution would spend an extra $325a year. That’s less than a third of what the one-fifth of households at the top of theincome distribution would pay annually. However, households in the low-incomegroup earn only one-tenth as much as those in the high-income group on average,so their burden relative to income would be almost four times higher.

Some economists argue that annual income, which changes over time, may be lessaccurate as a measure of household well-being than income measured over a lifetime.On the basis of lifetime income, the burden on the low-income households wouldbe 1.4 times higher than it would be on their higher-income counterparts, this studyfinds.

This gives the relative burden based on lifetime costs, comparing the bottom fifth with the topfifth of income.

[Laurent Belsie, “How Regressive is a Price on Carbon?”, National Bureau of Economic Research,July 2010]

The second key point is that calculations by household understate how regressive aprice on carbon would really be. That’s because households in the highest incomequintile are much larger averaging 3.1 persons than those in the lowest quintile,which average only 1.8 persons. Accounting for those differences (and for economiesof scale in household consumption), the authors calculate that the real impact of acarbon tax on a person in the lowest income quintile would be nearly five times more

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burdensome than for someone in the top income quintile. Using lifetime income inthis calculation, the burden would be 2.2 times greater.

This gives another US specific comparison:

[Clifton B. Parker,“Stanford research finds carbon regulation burden heaviest on poor”, StanfordReport, February 28, 2014]

Stanford research reveals that it is ultimately people – not corporations – who wouldbear the costs of climate change regulation. Under a hypothetical carbon tax, house-holds in the lowest income group would pay as a percent of income more than twicewhat households in the highest 10 percent of income distribution pay. The findingssuggest a fairer way to regulate greenhouse gases in the United States.

The heaviest burden for climate change regulation costs falls on people – especiallylower income groups – and not corporations, according to new Stanford research.

The reason is that companies ultimately pass on those costs to people. For the poor,basic necessities take up a bigger chunk of the budget than for the rich.

“Households in the lowest income group pay, as a percent of income, more than twicewhat households in the highest 10 percent of the income distribution pay,” wroteeconomist Charles Kolstad, a senior fellow at the Stanford Institute for EconomicPolicy Research and the Precourt Institute for Energy.

Moreover, this discrimination extends to other groups who use more energy, like those in morenorthern climates and people in rural areas.

[Derrick Morgan, “A Carbon Tax Would Harm U.S. Competitiveness and Low-Income AmericansWithout Helping the Environment”, Heritage Foundation, August 21 2012]

The poor tend to spend a higher proportion of their earnings on energy, particularlyutilities and transportation. Moreover, some Americans use more fossil-fuel energythan others because of driving distances (rural families drive more—27,700 milesper household vs. 17,600 miles for urban households[44]); geography (less temper-ate weather means more heating and cooling costs); and already constructed energyinfrastructure (coal plants are prevalent in the Midwest near mining operations). Acarbon tax would disproportionately hit these families, whose behavior is difficult tochange in the short run.

The CBO reports that in a number of ways the burden for the carbon tax would be unfairly borne.

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[Congressional Budget Office, “Effects of a Carbon Tax on the Economy and the Environment”,May 2013]

The costs of a carbon tax would not be evenly distributed among U.S. households. Forexample, the additional costs from higher prices would consume a greater share ofincome for low-income households than for higher-income households, because low-income households generally spend a larger percentage of their income on emission-intensive goods. Similarly, workers and investors in emission-intensive industries,who would see the largest decrease in demand for their products, would be likelyto bear relatively large burdens as the economy adjusted to the tax. Finally, areas ofthe country where electricity is produced from coal—the most emission-intensivefossil fuel per unit of energy generated—would tend to experience larger increasesin electricity prices than other areas would.

Finally, some additional numbers on a potential $20 per ton tax:

[Donald Marron, Eric Toder, and Lydia Austin, “Taxing Carbon and Recycling the Revenue: WhoWins and Loses?”, Urban Institute and Brookings Institution< No Date]

There is growing interest in taxing carbon dioxide to combat climate change and inrecycling the revenues into tax cuts. Recycling options include cutting the corporatetax rate or paying an equal “dividend” to every American. A carbon tax would beregressive, imposing a larger burden, relative to income, on low-income householdsthan on high income ones. A $20 per ton tax would be a hit of 0.8 percent of pre-taxincome for households in the bottom fifth of the income distribution, but only a 0.5percent hit in the top fifth

3.2.2 Responses to Regressive tax

Regressiveness is overstated

When taking into account how regressive carbon taxes are over their entire lifetime, the effect isreduced.

[Hassett et al, “The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis”, NationalBureau of Economic Research, October 2007]

Our results suggest that a carbon tax is far less regressive than is generally assumedwhen the analysis is done on a lifetime basis. This suggests that concerns over the

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distributional impact of a shift to a carbon tax may be overstated. It should be em-phasized that we have not addressed how the revenues of the tax are utilized, eitherto lower other taxes, reduce the deficit, or finance new spending. Metcalf (2007)presents an analysis of a carbon tax reform that is distributionally neutral when eval-uated in an annual income framework. The results of this analysis suggest that sucha reform may be progressive when analyzed in a lifetime income framework.

This gives the reason why using lifetime analysis is superior, and some information on themethodology from the previous excerpt:


This paper measures the incidence of carbon taxes using a lifetime incidence frame-work. We analyze the household burden of a $15 per metric ton tax on CO2 in con-stant 2005 dollars at three different points in time. The burden is measured rankinghouseholds by current income, current consumption and lifetime consumption asthe basis for the incidence measures. The methodology involves first working withthe economy-wide Input-Output tables from the Bureau of Economic Analysis toassess how the $15 tax would affect the industrial sector, in particular the prices ofenergy goods and other industrial goods in which these energy goods serve as inputs.We then use this information to calculate the increase in prices of consumer goodsas a result of the tax. Once we obtain the price increase in 42 categories of consumergoods, we calculate the burden of the tax on households using consumption datafrom the Consumer Expenditure Survey.

As the paper discusses, energy taxes have different incidence effects across the life-cycle. Therefore, it is important to measure the burden of taxes in terms of lifetimeincidence, not just their burden in a given year. To take account of the lifetime in-cidence, we use two proxies. First we use current consumption following work ofPoterba (1989). Second we use lifetime-corrected consumption introduced in Bullet al. (1994) and explained in detail in the Appendix to that paper.

Moreover, another study found that the regressiveness was often weak and didn’t account forenvironmental benefits:

[ZhongXiang Zhang and Andrea Baranzini, Professors at Chinese Academy of Social Sciences andthe Geneva School of Business Administration respectively, “What Do We Know About CarbonTaxes? An Inquiry into Their Impacts on Competitiveness and Distribution of Income”, East WestCenter, March 2003]

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Concerning the distributive impacts of carbon/energy taxes, the results from empir-ical studies show that carbon taxes are generally considered to be regressive, but thatthe overall impact is relatively weak. It should be noted that existing studies onlyfocus on the distribution of costs and they do not incorporate the distribution ofbenefits from improved environment quality, mainly because they are highly uncer-tain and difficult to measure, especially in monetary terms. In addition, in manycases, a carefully designed carbon tax, in combination with revenue recycling mea-sures, could address possible regressive impacts, especially if the introduction of car-bon taxes is phased in gradually and over a long time period. Therefore, the fiscalrevenues generated by the carbon tax are a central element in mitigating its main im-pacts. However, we have shown that the ways carbon taxes revenues can be used tocompensate for the regressive impacts, e.g., lump-sum redistribution or increases insocial security benefits, are often not the best options to maximise the efficiency gainsfrom the tax, which may be accomplished with reductions in distortionary taxes, e.g.,capital taxes. Thus, there is often a trade-off between efficiency and equity in the useof the carbon tax revenues.

Regional differences are almost non-existent:


Carbon taxes are also thought to have uneven regional effects. We report the averagecarbon tax paid per household across regions and find that the regional variation isat best modest. By 2003 variation across regions is sufficiently small that one couldargue that a carbon tax is distributionally neutral across regions. Not surprisinglymuch of the variation that we do observe arises from the direct carbon tax ratherthan the indirect tax. In other words, differences in driving patterns and weatherconditions drive the variation rather than the choice of energy intensive commoditiesin different regions.

Can be offset by reinvestment

It is likely that some of the revenue from a carbon tax that is implemented would go to socialservices, which could make up for the regressiveness:

[Aparna Mathur and Adele Morris, “Distributional Effects of a Carbon Tax in Broader US FiscalReform”, American Enterprise Institute and Brookings Institution, December 14 2012]

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Results suggest that if policymakers direct about 11 percent of the tax revenue to-wards the poorest two deciles, for example through greater spending on social safetynet programs than would otherwise occur, then on average those households wouldbe no worse off after the carbon tax than they were before.

Moreover, recently proposed legislation has included provisions to give rebates to the poorest tooffset the regressiveness effect:

[Chad Stone, chief economist at the Center on Budget and Policy Priorities, “Good Climate Pol-icy Doesn’t Hurt the Poor: Don’t buy that fighting climate change is bad news for low-incomehouseholds.”, US News, September 24 2015]

That’s because a carbon tax does two things. Yes, it raises the price of energy and othergoods and services that compose a disproportionately large share of low-incomehouseholds’ budgets. At the same time, however, it raises revenues that policymak-ers can use to offset that hit to the budgets of those low-income households. As Iexplained recently at a Resources for the Future seminar on the impact of a carbontax on low-income households:

The idea of using a modest portion of the revenues raised from “putting a price oncarbon” to protect low-income households is not new. The Waxman-Markey climatebill which the House passed in 2009 (but which the Senate didn’t consider) includeda robust low-income-rebate provision that did just that.

In the chart, the yellow bars show the percentage hit to households’ purchasing powerby income group under the House bill. And, indeed, the hit to the poorest 20 percentis the largest (as a share of their income). The blue bars, however, show the finan-cial gain to households from the uses to which the revenue was put, including thelow-income rebate. The red dots show the net impact for each income group – thedifference between these costs and benefits.

All income groups derive some financial benefit from the revenue uses, greatly miti-gating gross costs. Low-income households as a group, in fact, are net winners.

Regional Differences even out

Conveniently, the many factors that go into carbon use in regions throughout the United Statesmostly even out:

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Some also fear that areas of the U.S. heavily dependent on coal for electricity, forexample, will be hit much worse than other regions. However, prior analysis of thedistribution of burdens across the country shows that households in different re-gions will likely bear similar burdens as a share of income. That is because people indifferent regions use different mixes of fuels to heat and cool homes, and they alsovary in their gasoline consumption. Hassett et al (2009) show that these differencestend to even out the impact of the price on carbon. In other words, areas where elec-tricity prices may go up most may be areas where expenditures on transport fuelsare relatively low. In addition, households in most regions consume similar basketsof non-energy goods, resulting in similar patterns of indirect energy consumption.However, the study estimates that a carbon pollution tax could fall a little harder thanaverage on households in Eastern central states because of their higher overall fuelconsumption as a share of income.

3.2.3 Defense of Regressive tax

Significant when taking into account direct and indirect energy costs:


Consistent with earlier findings, we find that a carbon tax is regressive. Taking intoaccount both direct and indirect energy costs, the carbon tax burden would comprise3.5 percent of the income of the poorest decile of households and only 0.6 percentof the income of the highest decile. In the consumption approach, the carbon tax issubstantially less regressive, with the ratio of average taxes paid by the bottom andtop deciles equal to about 1.7.

3.3 Argument Guide 3: Carbon taxes hurt the economy

3.3.1 Laundry list of negative impacts

Using a modeling system, the Heritage Foundation found a ton of negative economic impacts toa carbon tax:

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[Dr. David W. Kreutzer, Research Fellow in Energy Economics and Climate Change, “Impacts ofCarbon Taxes on the US Economy”, The Heritage Foundation, September 16, 2014]

In 2013 Senators Barbara Boxer (D-CA) and Bernie Sanders (I-VT) proposed a car-bon tax in their Climate Security Act of 2013.[1] The tax started at $20 per metricton and would rise by 5.6 percent per year, reaching $50 per metric ton by 2030 (theendpoint for the Heritage analysis).

Using the Heritage Energy Model (HEM), a derivative of the Energy Information Ad-ministration’s National Energy Modeling System (NEMS), Heritage projected whatthe economic impacts would have been had the bill become law.[2]

The impacts would have included (dollar values are adjusted for inflation):

• GDP loss of $146 billion in 2030

• A family of four losing more than $1,000 of income per year,

• Over 400,000 lost jobs by 2016,

• Coal production dropping by 60 percent and coal employment dropping bymore than 40 percent by 2030,

• Gasoline prices rising $0.20 by 2016 and $0.30 before 2030, and

• Electricity prices rising 20 percent by 2017 and more than 30 percent by 2030.

Though renewable energy grew compared to baseline levels, it wasn’t enough tomake up for the lost hydrocarbon energy. In addition it is certain that businessesand households economized on energy use both by doing without and by employingmore energy efficient technologies. These responses would stimulate employmentin certain sectors, but the net effect is an overall loss in employment. The projectedemployment loss for 2016 was 400,000 jobs. Of course the energy-dependent sectorswould suffer relatively larger job losses. Chart 1 from the Heritage analysis shows joblosses as a percent of baseline employment.

Particularly important US industries are energy intensive and would lose competitiveness if acarbon tax were instituted.

[Mark J Perry, “Carbon Tax would Kill Major Industries, Hurt US Consumers”, Investor’s BusinessDaily, October 15 2012]

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The hardest-hit sectors of the U.S. economy from a carbon tax would be energy-intensive industries, particularly chemicals, car manufacturing, iron and steel, alu-minum, cement, and mining and oil refining.

These large industries would be at a serious disadvantage in the world marketplace,and many companies would move production to countries without such a tax.

The cost in dollars, as well as in lost jobs, from a carbon tax would be staggering.

And the cost would ultimately fall on American consumers — without necessarilygenerating any environmental benefits if China, India and other countries with fast-growing economies continue to pollute.

Moreover, production would move overseas to countries with less stringent regulations.


In the context of analyzing the effect of differentiated carbon policies, carbon leakageis a twofold problem. The first is the possibility that introduction of a carbon controlregime in a country ahead of the introduction of a comparable policy in compet-ing countries could result in the production of greenhouse gas-intensive productsdiminishing in the country attempting to control emissions and increasing in com-peting countries with no carbon controls. Basically, countries with carbon controlsrisk losing global market share to competing countries without controls. This wouldcounteract the net reductions achieved by the country attempting to address climatechange and reward economically the countries that were not.

The National Association of Manufacturers ran an analysis and found a host of negative economicimpacts across several measures and areas of the economy.

These include, first, reductions in consumption:


Figure 2 illustrates the net effects on the overall economy as measured by GDP andhousehold consumption. Under the $20/ton case, GDP would be reduced by about0.5 percent ($97 billion) in 2023. Over time, the negative impact of the 80 percentreduction case on GDP is substantially greater, reducing GDP growth by 3.6 percent(almost $1.4 trillion) by 2053.

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The predicted change in average consumption per household from the two carbontax cases is also negative and is substantial in the later years under an 80 percentreduction case. Note that the results reflect market responses to the carbon tax (i.e.,changes in consumer behavior in response to higher costs associated with a carbontax). Thus, individuals would not purchase the same goods and services as in thebaseline, but would substitute other items that become a lower cost due to the carbontax. This modeling aspect lowers the impacts on household consumption below whatthey would have been if the baseline consumption mix of goods and services wereassumed to be purchased.

In a $20/ton case, average household consumption would be reduced by about $350in 2033 and by about $440 in 2053, with a present value reduction over the period2013–2053 of $310 per household. Under the 80 percent reduction case, the averagehousehold consumption declines by about $860 per household in 2033 and by almost$2,700 per household in 2053, with a present value reduction of $920 per householdover the entire period.

They also include reductions in wages and employment:


Similarly, a carbon tax would lead to lower real wage rates because companies wouldhave higher costs and lower labor productivity. Figure 3 focuses on several dimen-sions of projected impacts of a carbon tax on workers’ income. Lower real wage ratesdirectly reduce workers’ incomes even if workers continue to work the same num-ber of hours. At the same time, lower wage rates decrease workers’ willingness towork as many hours, leading to reduced labor force participation. With fewer hoursworked, total labor income declines by a greater percentage than does the wage rate.These are the net effects on labor in aggregate and include the positive benefits ofincreased labor demand in sectors providing energy and other goods and servicesthat have low carbon intensity.

The impacts on labor income in both carbon tax scenarios are substantial, particu-larly in the 80 percent reduction case in the later years. For the $20/ton case, laborincome declines relative to baseline levels by about 1 percent throughout the period,resulting in job-equivalent losses that range from about 1.5 million job equivalentsin 2013 to about 3.8 million job equivalents in 2053. Under the 80 percent reductioncase, decreases in labor income relative to baseline levels range from about 1 percent

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in the early years to 8.3 percent by the end of the period, resulting in losses of jobequivalents relative to baseline levels ranging from about 1.3 million job equivalentsin 2013 to almost 21 million job equivalents by 2053.

There may also be a ripple effect:


At the same time, the increased costs of coal, natural gas and petroleum products dueto a carbon tax would ripple through the economy and result in higher productioncosts and less spending on non-energy goods. For workers, a carbon tax would leadto lower real wage rates because companies would have higher costs and lower laborproductivity. Over time, workers’ incomes could decline relative to baseline levels byas much as 8.5 percent.

A final effect includes a decline in manufacturing:


For manufacturers, the net negative impact of a carbon tax on manufacturing out-put would be significant. Relative to baseline levels, output from energy-intensivemanufacturing sectors could decline as much as 15.0 percent, and output from non-energy-intensive manufacturing sectors could decrease as much as 7.7 percent.

3.3.2 Responses to Negative Impacts

British Columbia had reduced emissions and economic growth

Economic growth coincided with reducing pollution:

[The Editors, “A Tax on Carbon Pollution Can Benefit Business: Low oil and gas prices make thisthe right time to tax fossil fuels”, Scientific American, December 1, 2015]

In British Columbia, air pollution dwindles while the economy grows. The Canadianprovince began to tax fossil-fuel users, ranging from utility companies to car drivers,in 2008. Since then, the economy has grown by an average of nearly 2 percent a year,despite a big national recession through 2009, outpacing the rest of Canada. Theuse of gasoline, coal and other carbon-based fuels has dropped 16 percent duringthe same period, reducing greenhouse gas pollution. Today the carbon levy is $30

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(Canadian) per metric ton; in exchange, both companies and individuals get incometax cuts and other savings.

The revenues from the carbon tax allowed British Columbia to cut taxes in other areas, allowingfor continued growth:

[Stewart Elgie, Professor of Law at the University of Ottawa, “Just the facts, please: The true storyof how B.C’s carbon tax is working”, Sustainable Prosperity, July 9 2014]

Six years after the policy was instituted, BC’s fuel use is down a whopping 16.1%. Itseconomic growth has kept pace with the rest of Canada. And its personal and cor-porate income tax rates are now among the lowest in Canada. In short, the numbersindicate that BC’s carbon tax shift has been a remarkable success, environmentallyand economically.

Would Raise Revenue to Benefit US Economy

Tons of revenue over time would be raised by a carbon tax:

[Adele Morris and Aparna Mathur, “A Carbon Tax in Broader U.S. Fiscal Reform: Design andDistributional Issues”, Center for Climate and Energy Solutions, May 2014]

A well-designed carbon tax could improve the long-run U.S. fiscal situation whilereducing emissions. For example, estimates suggest that a tax on the carbon contentof fuels in the energy sector that started at $16 per ton of carbon dioxide in 2014 androse at 4 percent over inflation per year would raise more than $1.1 trillion in the first10 years and more than $2.7 trillion over a 20-year period. A broader tax base thatincluded emissions of other greenhouse gases (e.g., non-energy carbon dioxide andmethane) would raise even more revenue. The long-term revenue and emissions re-ductions would depend on a host of hard-to-predict factors such as economic growthand the evolution of energy technologies.

These revenues could be used to reduce the deficit.


In addition, a number of individual economists have offered detailed proposals forimplementing a carbon tax to reduce the deficit and/or reduce other taxes.18 For ex-ample, Morris (2013b) suggests an approach that would “within twenty years …re-duce annual emissions by 12 percent from baseline levels, generate enough revenue

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to lower the corporate income tax rate by 7 percentage points, and decrease the deficitby $815 billion, all while protecting the poorest households from undue burden.”Aldy (2013) offers a similar proposal. The conclusion here is that a well-designedcarbon tax is a solid option for funding deficit reduction and tax reform, and it issupported by many experts.

Tax swaps, where revenues from carbon taxes replace other taxes, could benefit economy substan-tially.


A carbon tax could, if designed correctly, improve the long-run U.S. fiscal situationwhile controlling U.S. greenhouse gas (GHG) emissions. If the United States usesrevenue from a carbon tax to fund a long-term reduction in other taxes, the tax swapcould potentially enhance the overall economic efficiency of the tax code. For exam-ple, revenue from a carbon tax could allow the United States to reduce its statutorymarginal corporate income tax rate, which is currently the highest in the developedworld, to a more internationally competitive level. It could also reduce payroll taxesor personal income tax rates. The carbon tax could also prevent cuts in social safetynet spending and reduce the federal budget deficit. A price on carbon could also sup-plant more-costly and less-effective measures to reduce emissions, promote clean en-ergy and energy efficiency, and drive innovation, saving both budget and regulatorycosts. An important dimension to the adoption of a carbon tax is the extent to whichcongress suspends or preempts existing legal authorities to control GHG emissionsat the federal and state levels.


Almost all economists, and most Canadian business and environmental leaders, be-lieve that a carbon price is the most cost effective tool for reducing GHG emissions(Sustainable Prosperity 2011). BC’s carbon tax shift is providing increasing evidencethat they are right. Since 2008, when the tax came in, fuel use in BC has droppedsubstantially – 19 percent more per capita than in the rest of Canada – and GHGemissions are trending in the same direction. At the same time, BC’s GDP growthhas kept pace with the rest of Canada’s, suggesting that the tax shift has not harmedthe province’s economy. However, the policy is just four years old, and further study

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is needed to reach firm conclusions about its exact environmental and economic ef-fects.

3.3.3 Defense of Negative Impacts

Defense against “British Columbia economic growth”

Although British Columbia still did relatively well after the carbon tax, it did not do as well as ithad been doing prior to it.


Turning to the claim that B.C.’s carbon tax did not harm its conventional economy(because B.C. has matched overall Canadian growth since 2008), there is one awk-ward problem: the B.C. economy was outperforming the rest of Canada prior to thecarbon tax. Specifically, from 2003 – 2008, B.C. real output grew by a cumulative18.6%, whereas Canadian real GDP grew by only 12.7%. In contrast, from 2008 –2013 (the latest annual figure available), B.C. output grew by 8.0%, while Canadagrew by 7.7%.

Similar effects occurred in unemployment figures.


We see a similar pattern in the labor market. In the five years before introduction ofthe B.C. carbon tax, the average unemployment rate in B.C. was 5.6%, compared toa Canadian average of 6.6%. But in the five years after the B.C. carbon tax began, theaverage unemployment rate in B.C. was 7.1% compared to 7.6% in Canada overall.58Thus the labor market advantage of B.C. versus Canada was cut in half if we look atthe five‐year periods before and after introduction of the B.C. carbon tax, which wehave illustrated in Figure 6.59

When comparing how such effects would play out in the US, it is likely that there would be nega-tive impacts as well.


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In summary, when we look at British Columbia—the hands‐down best real‐worldexample of a carbon tax swap, according to proponents—we find that even the of-ficial figures show B.C. has had only a modest reduction in gasoline consumptionrelative to the rest of Canada, and that these official figures are plagued by signif-icant “leakage” into other jurisdictions, which may have led authorities to providelarger tax cuts than they had intended. Furthermore, B.C.’s offsetting tax cuts werenot designed from a supply‐side perspective, as they included lump‐sum transfersto low‐income groups. Indeed, in practice the evidence suggests that even with theassociated net tax cuts, B.C. unemployment and real economic growth rates sufferedafter the carbon tax was enacted. Inasmuch as any U.S. carbon tax will not be rev-enue neutral—let alone be phased in with net tax cuts—the B.C. example leads us toexpect modest changes in gas consumption in exchange for a weaker economy.

Real World Examples prove negative economic impacts

This piece of evidence is important for shifting the debate to give them the burden of proof basedon the environment outweighing the economy.


Of particular relevance to libertarians and conservatives, we further showed that the“tax interaction effect” suggests that there most likely would not be a doubledividendboost to conventional economic growth, even if a carbon tax were fully refundedthrough payroll tax cuts or lump‐sum payments. In the more realistic scenario inwhich a carbon tax would only partially be refunded, the results aren’t even close:such a tax would clearly hurt the conventional economy, meaning that it could onlybe justified on environmental grounds.

Defense Against “Tax Revenue”

Revenues would be small after accounting for economic harms, which reduce other sources oftax revenue.


The carbon tax cases modeled in this study would have net negative effects on con-sumption, investment and overall economic activity. Moreover, taking into account

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the lost revenue from less economic activity, the net revenue from a carbon tax avail-able for deficit/debt reduction and lower tax rates is relatively small.

Defense Against “National Association of Manufacturers is Biased”

Methodology of study shows that it uses an independent model.


Using an economy-wide, computable general equilibrium model (NERA EconomicConsulting’s NewERA Model), the study includes estimates of the effects of a carbontax in two major areas: the U.S. economy (which includes economic activity mea-sured by gross domestic product (GDP), personal income and various measures ofeffects on workers) and emissions and energy (which includes carbon dioxide (CO2)emissions at the national, regional and sector levels, and outcomes in energy markets,such as electricity, natural gas, coal and oil). The study reports national and regionalresults. The NewERA Model combines a detailed plant-specific representation of theelectric sector and the related coal sector with representation of the rest of the sectorsof the economy. The model is designed to assess, on an integrated basis, the effects ofmajor policies on electricity markets, other energy markets and the overall economy.The output includes potential reductions in CO2 emissions within U.S. borders.

Moreover, the only reason manufacturers would be biased against a carbon tax is if a carbon taxwould be bad for manufacturing. This implies that a carbon has a negative effect on the economy.

3.4 Argument Guide 4: Carbon taxes improve alternative energy growth

This short guide gives a bit of an introduction into how carbon taxes, especially ones that increaseover time, would spur innovation in alternative energies because it would become more costly toignore that type of research.

3.4.1 Increased innovation

The US could be a leader in innovation because of its unique scientific position.

[Joshua Meltzer, Fellow in Global Economy and Development, Brookings Institution and adjunctprofessor at the Johns Hopkins School for Advanced International Studies, “A Carbon Tax As an

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Incentive for Green Innovation and the Implications for International Trade”, Energy Law Journal,May 13 2014]

The United States should introduce a carbon tax. This would be a means to raise rev-enues to address the fiscal deficit and complement bipartisan efforts to incentivizeinnovation in the green technology sector in an effort to reduce CO2 emissions. Infact, U.S. capacity on the innovation front could end up being the greatest contribu-tion the United States makes to reducing global CO2 emissions.

In many respects, what the United States does will be central to how the develop-ment of green technologies and trade proceeds. As the world’s largest economy withan unrivalled capacity for innovation and R&D, should the United States price car-bon, how this incentivizes clean technology R&D and manages the implications forinternational trade will largely define whether the climate change and trade regimesare mutually supportive or are developed at the expense of each other.

Related would be the adoption of alternative fuels, as in this model:

[Dr. Annie Smith et al, “Economic Outcomes of a US Carbon Tax”, NERA Economic Consulting,February 17, 2013]

To lower carbon taxes in the transportation sector consumers must either consumeless transportation fuel or use transportation fuels with lower carbon contents thantraditional gasoline and diesel fuel. With respect to fuels, both of the tax cases addsignificant quantities of advanced biofuels with lower carbon contents than tradi-tional transportation fuels. (The available advanced biofuels are described in SectionII.C.1 and in Appendix B.) By 2053, advanced biofuels production doubles from thatin the Baseline in the $20 Tax Case. The 80% Reduction Tax Case’s advanced biofuelsproduction is more than eight time higher than the Baseline by 2053.

3.4.2 Responses to Increased innovation

No empirical basis

First, innovation has not increased in places comparable to the US where carbon taxes have al-ready been put in place.

[Oren Cass, “The carbon-tax shell game: MIT economist Robert Pindyck quoted in evaluation ofthe cons of carbon tax policy”, MIT Energy Initiative, July 29 2015]

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But empirical evidence demonstrates that the price signal generated by the kinds ofcarbon taxes under consideration will not lead to technological breakthroughs. Thatevidence comes from Europe, a comparably sized market to ours, where taxes andrelated policies have already pushed energy costs far above the levels that a carbontax would take them in the United States. For instance, $1 of tax on a ton of CO2emissions adds approximately one cent to the cost of a gallon of gas. With gas pricestypically at least $4 higher than U.S. prices, Europe already has the equivalent ofa carbon tax on the order of $400 per ton of CO2. Similarly, taxes and fees driveEurope’s electricity costs up to more than double U.S. rates, the equivalent of a carbontax of more than $200 per ton. To the extent that large price signals will produceinnovation, the United States could presumably free-ride on the incentives offeredand paid for by the European market. But such innovation has not been forthcoming,and it is unclear why more of the same signals in the American market would changethe dynamic.

Not designed for spurring innovation

The lack of innovation makes sense because carbon taxes aren’t designed to nurture innovation.

[Oren Cass, “The carbon-tax shell game: MIT economist Robert Pindyck quoted in evaluation ofthe cons of carbon tax policy”, MIT Energy Initiative, July 29 2015]

Absolute value aside, a tax is uniquely ill-suited to the task of spurring the desired in-novation. If the goal is to develop products that can compete head-to-head with fos-sil fuels, a well-designed program would support a nascent technology as it pursuedcommercialization and scale but phase out as it matured, to ensure that producers re-mained focused on a cheaper-than-carbon endgame. A carbon tax does exactly theopposite: It provides no disproportionate support at the early stages where govern-ment intervention is most justified, and it never phases out to apply full competitivepressure. To the contrary, most carbon-tax designs actually increase dramaticallyover time, guaranteeing innovators an ever-greater advantage over the fossil fuelsthey are supposed to be driving out of the global market with competitive costs.

Investor Predictability is overstated

One argument is that carbon taxes make it easy for businesses to predict the price of carbon andthat this will allow them to invest in longer term research with more confidence. However, politics

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may destroy some of this certainty, mitigating its benefit.


Finally, advocates claim that a U.S. carbon tax will establish a predictable “price” forcarbon that firms can incorporate into their long‐term investment plans. Yet in Aus-tralia, the carbon tax was a comedy of errors. Originally the government promisedduring the 2010 campaign that it would not implement a carbon tax in the next 3‐yearcycle. This promise was abandoned, as the carbon tax was in fact introduced in July2012, with a planned transition to a cap and trade scheme in 2015. Later the govern-ment proposed to move to the cap and trade scheme a year ahead of time, but thiswas never formalized, leaving the business community uncertain. And of course,with the September 2013 election of Abbott, the policy was upended again, withAustralia’s carbon tax being abolished in July 2014. The real‐world case of Australiashows that achieving a carbon tax most certainly does not provide “policy certainty”to allow businesses to confidently make long‐term decisions.

3.4.3 Defense of Increased Innovation

The effect is empirically confirmed:

[Sigurd Naess Schmidt et al, “Innovation of Energy Technologies: The Role of Taxes”, CopenhagenEconomics, November 26 2010]

The advantage of using taxation to spur innovation in energy technologies is just amirror image of the advantage of using taxation to abate emissions in general. Bytaxing directly the quantity – for example emission of CO2 – the same incentiveacross all fields of innovation will be made available in order to save energy and/orreduce CO2 emissions. Hence removing the need for policy makers to “guess”, basedtypically on incomplete information, where innovation activities should be focused.

The effects on innovation are of an “induced” nature containing three steps. First,appropriate tax regimes can make it more expensive for private and industrial con-sumer to use (fossil) energy sources. Second, this in turn increases the demand fortechnical solutions that either save energy or use low fossil content energy sourcesand thereby improving the economic viability of such technologies. Thirdly, this(re)directs the innovation efforts of enterprises in that direction; this is what we term“induced” innovation.

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These effects are not just of a theoretical nature, but are demonstrated in many appli-cations of energy use over many decades. Our review of the literature suggest thatthe long term effects of capturing all the three effects imply that an increase in energyprices or taxes of 1 per cent often leads to a fall in energy use of 1 per cent of more(c.f. chapter 2.1 for details).

Moreover, this can be further seen in not just the reduction in energy use but also the adoptionof energy efficient technology.

[Sigurd Næss Schmidt et al, “Innovation of Energy Technologies: The Role of Taxes”, CopenhagenEconomics, November 26 2010]

The high average electricity price over the past years (2000-2004) seems to have ledto consumption choices with a higher penetration of energy efficient appliances inthe period of interest (2005).16 Hence in countries with high electricity taxes suchas Denmark, The Netherlands and Sweden, the share of highly efficient householdappliances – those marked in energy class A and A+ - is much more widespread.17A more in-depth study for US showed that over a time span of 30 years, rising en-ergy prices have led to innovation in energy consuming household appliances, andthat more energy efficient models were offered for sale (and actually sold). Here, itis also emphasised that additional information about energy use, directs consumerbehaviour towards more energy efficient appliances.18 One should take this exam-ple to note the general point that the link between taxation and energy efficiency isindirectly through prices. Some countries may have high prices without having sig-nificant taxes and vice versa. However, the tax always adds to the price and thereforehelps moving the adoption towards energy efficient appliances.

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4 Cards: What’s a Carbon Tax?

4.1 Explanations From Various Sources

4.1.1 Center for Climate and Energy Solutions

Carbon taxes can be upstream or broad

“OPTIONS AND CONSIDERATIONS FOR A FEDERAL CARBON TAX,” Center for Climateand Energy Solutions. February 2013. http://www.c2es.org/publications/options-considerations-federal-carbon-tax

A carbon tax uses the power of market price signals to encourage greenhouse gas emission re-ductions from a variety of sources. The predominant greenhouse gas produced by humans iscarbon dioxide (CO2), which results largely from burning fossil fuels. An upstream carbon tax,for example, would impose a charge on coal, oil, and natural gas in proportion to the amount ofcarbon they contain. This tax would be passed forward into the price of electricity, petroleumproducts, and energy-intensive goods. A more broad-based carbon tax could also be designedto apply to non-energy sources of CO2 emissions and on other greenhouse gases based on theirglobal warming potential relative to CO2.

4.1.2 World Bank

The World Bank defines a carbon tax

World Bank, 2015, http://www.worldbank.org/content/dam/Worldbank/document/SDN/background-note_carbon-tax.pdf

Putting a Price on Carbon with a Tax Carbon Tax at a Glance A carbon tax is a form of explicit car-bon pricing; it refers to a tax directly linked to the level of carbon dioxide (CO2) emissions, oftenexpressed as a value per tonne CO2 equivalent (per tCO2e). 1 Carbon taxes provide certainty inregard to the marginal cost faced by emitters per tCO2e, but do not guarantee a maximum levelof emission reductions, unlike an emissions trading scheme. However, this economic instrument

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can be used to achieve a cost ‐ effective reduction in emissions. Since a carbon tax puts a price oneach tonne of GHG emitted, it sends a price signal that gradually cause a market response acrossan entire economy, creating incentives for emitters to shift to less greenhouse ‐ gas intensive waysof production and ultimately resulting in reduced emissions.

4.1.3 Aldy and Stavins

Aldy and Stavins outline what a carbon tax policy would look like

Joseph E. Aldy, [Associated Professor of Public Policy at the Harvard Kennedy School of Govern-ment] and Robert N. Stavins [Professor of Business and Government, Harvard Kennedy School,“The Promise and Problems of Pricing Carbon: Theory and Experience,” Journal of Environmentand Development, 2011.

In principle, the simplest approach to carbon pricing would be through government impositionof a carbon tax (Metcalf, 2007). The government could set a tax in terms of dollars per ton of CO2 emissions (or CO 2 ‐ equivalent on greenhouse gas emissions) by sources covered by the tax, or– more likely – a tax on the carbon content of the three fossil fuels (coal, petroleum, and naturalgas) as they enter the economy. To be cost ‐ effective, such a tax would cover all sources, and tobe efficient, the carbon price would be set equal to the marginal benefits of emission reduction,represented by estimates of the social cost of carbon (Interagency Working Group on Social Costof Carbon, 2010). Over time, an efficient carbon tax would increase to reflect the fact that as moregreenhouse gas emissions accumulate in the atmosphere, the greater is the incremental damagefrom one more ton of CO 2 . Imposing a carbon tax would provide certainty about the marginalcost of compliance, which reduces uncertainty about returns to investment decisions, but wouldleave uncertain economy ‐ wide emission levels (Weitzman, 1974).

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5.1 Theory Behind Carbon Taxation

5.1.1 An explanation of public goods and externalities

Economic theory dictates that government intervention is justified if the intervention targetsa flawed market

Tyler Cowen [Professor of Economics at George Mason University], “Public Goods and External-ities,” in TheConcise Encyclopedia of Economics, editted by David R. Henderson. Online Resource.http://econlib.org/library/Enc1/PublicGoodsandExternalities.html

Most economic arguments for government intervention are based on the idea that the market-place cannot provide public goods or handle externalities. Public health and welfare programs,education, roads, research and development, national and domestic security, and a clean envi-ronment all have been labeled public goods.

Public goods have two distinct aspects—“nonexcludability” and “nonrivalrous consumption.”Nonexcludability means that nonpayers cannot be excluded from the benefits of the good orservice. If an entrepreneur stages a fireworks show, for example, people can watch the show fromtheir windows or backyards. Because the entrepreneur cannot charge a fee for consumption,the fireworks show may go unproduced, even if demand for the show is strong. The fireworksexample illustrates the “free-rider” problem. Even if the fireworks show is worth ten dollars toeach person, no one will pay ten dollars to the entrepreneur. Each person will seek to “free-ride”by allowing others to pay for the show, and then watch for free from his or her backyard. If thefree-rider problem cannot be solved, valuable goods and services, ones that people want andotherwise would be willing to pay for, will remain unproduced.

The second aspect of public goods is what economists call nonrivalrous consumption. Assumethe entrepreneur manages to exclude noncontributors from watching the show (perhaps one cansee the show only from a private field). A price will be charged for entrance to the field, and peoplewho are unwilling to pay this price will be excluded. If the field is large enough, however, exclusion

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is inefficient because even nonpayers could watch the show without increasing the show’s cost ordiminishing anyone else’s enjoyment. That is nonrivalrous competition to watch the show. Exter-nalities occur when one person’s actions affect another person’s well-being and the relevant costsand benefits are not reflected in market prices. A positive externality arises when my neighborsbenefit from my cleaning up my yard. If I cannot charge them for these benefits, I will not cleanthe yard as often as they would like. (Note that the free-rider problem and positive externalitiesare two sides of the same coin.)

A negative externality arises when one person’s actions harm another. When polluting, factoryowners may not consider the costs that pollution imposes on others. Policy debates usually fo-cus on free-rider and externalities problems, which are considered more serious problems thannonrivalrous consumption.

5.1.2 The Energy Consumption Market is Imperfect

The social cost of emitting is not reflected in its price


The figure below depicts the market for a good which uses fossil fuel in its production, such aselectricity. Consumers determine their demand for electricity in part based on the market price,which reflects the private cost of production—including extraction, processing, and distributioncosts that transform fuels like coal and natural gas into electricity—and purchase the amount QP.The market price, however, does not account for the social cost of the environmental damageassociated with climate change induced by burning these fuels. A carbon tax would attempt tocorrect for this divergence between private and social cost by imposing a carbon tax on each unitof fossil fuel sold.

Fossil fuel consumption carries a negative externality

“Do Economists All Favor a Carbon Tax,” The Economist. September 19, 2011. http://www.economist.com/blogs/freeexchange/2011/09/climate-policy

Why would we expect economists to support a carbon tax? It’s very close to the economic ideal.Global warming is a phenomenon associated with emissions of greenhouse gases over and abovenatural cycles—largely those resulting from the burning of carbon fuels humans have dug up outof the ground. We expect normal economic activity to maximise social good because each indi-vidual balances costs and benefits when making economic decisions. Carbon emissions represent

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a negative externality. When an individual takes an economic action with some fossil-fuel energycontent—whether running a petrol-powered lawnmower, turning on a light, or buying bunch ofgrapes—that person balances their personal benefits against the costs of the action. The cost tothem of the climate change resulting from the carbon content of that decision, however, is effec-tively zero and is rationally ignored. The decision to ignore carbon content, when aggregated overthe whole of humanity, generates huge carbon dioxide emissions and rising global temperatures.

The free market fails when it comes to carbon emissions.

Jonathan L. Ramseur [Congressional Research Service Specialist in Environmental Policy], “Car-bon Tax: Deficit Reduction and Other Considerations,” CRS, April 2, 2013.

Not all results from economic activity are considered desirable—pollution being one example.When producers or consumers discharge po llution—including GHG emissions—to another per-son’s private property or a publicly shared resource—such as the atmosphere—without paying todo so, they are not paying for the full cost of a product or activity. Economists would describe thisoutcome as a “market failure,” because the costs associated with GHG emissions are not capturedin the economic decision process. Economists contend that levying a charge on GHG emissionwould be an economically efficient way to correct the failure. 54 For example, in terms of envi-ronmental policy, fossil fuel prices do not reflect the costs—related to climate change and oceanacidification damages—associated with the GHG emissions. A pollution discharge fee could in-ternalize these external costs into market prices.

5.1.3 Taxation Can Serve As A Correction

Government intervention corrects a flawed emissions market


The economic rationale for creating a price on greenhouse gas emissions is multifold. First, itwould correct an underlying market failure that has led to increasing concentrations of green-house gases in the atmosphere. The burning of fossil fuels and other activities that release green-house gases are associated with warming global temperatures and adverse climate impacts. Thecosts of these impacts, including an increase in extreme and damaging weather events, rising sealevels, loss of biodiversity and other effects, will be borne by society as a whole, including futuregenerations. However, these costs are not currently included in the market prices of goods thatemit greenhouse gases, leading to an inefficient use of resources and excessive emissions from a

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societal perspective (see Box 1 for a discussion). A carbon tax would attempt to include thesecosts in market prices.

Economists like the carbon tax


The economic solution is to tax the externality so that the social cost of carbon is reflected in theindividual consumer’s decision. The carbon tax is an elegant solution to a complicated problem,which allows the everyday business of consumer decision making to do the work of emissionreduction. It’s by no means the only economically sensible policy response to the threat of climatechange, but it is the one we’d expect economists to embrace.

A carbon tax would resolve the emissions market failure

Jonathan L. Ramseur [Congressional Research Service Specialist in Environmental Policy], “Car-bon Tax: Deficit Reduction and Other Considerations,” CRS, April 2, 2013.

A primary argument in favor of a carbon tax is that it would, in theory, increase the efficiency ofmarkets by discouraging “bad” activities. A carbon tax would discourage pollution that imposescosts on others who do not necessarily benefit from the polluting activity. These may includefuture generations that bear the dislocations of climate change, or fishery sectors in develop-ing countries that experience lower yields in acidified oceans. A carbon tax would encourageenergy consumers—for example, power plants, industry, households, etc.—to (1) switch to lesscarbon-intensive fuels; (2) use less energy or use energy more efficiently; and (3) prefer productsor services that are lower-priced by virtue of incorporating less emission tax. Each of these ac-tivities would reduce GHG emissions compared to a business-as-usual track and could improveeconomic efficiency.

5.1.4 A carbon tax eliminates the free rider problem.

Pollution is a free-rider problem, BC used the carbon tax to solve it

Nicholas Rivers [Graduate School of Public and International Affairs, University of Ottawa] andBrandon Schaufele [Department of Economics, University of Ottawa], Working Paper, Depart-ment of Economics, University of Ottawa, August 2012.

Imposition of a carbon tax eliminates the free-ride rship problem and, as a consequence, anyresentment of free-ridership. A carbon tax for ces all drivers to pay an environmental cost foreach litre of gasoline consumed. An environmentall y conscious driver can therefore reduce her

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kilometres knowing that the non-environmentally con scious individual is paying the full envi-ronmental costs of his decision. As an addendu m to this argument, it is worth noting that govern-ments tend not to enact high profile policies such as carbon taxes without some mandate from theelectorate. Insofar as resentment of free -ridership prevented environmentally conscious votersfrom contributing to an environmental public good, the policy may act as a form of coordinatingmechanism or focal point, one that lev erages non-standard preferences, inasmuch as it acts asa corrective tax. In other words, the m ere fact that the policy was introduced is a signal that asizeable share of BC residents supported some form of emission control policy.

5.2 Link: Carbon Taxation Reduces Fossil Fuel Usage

5.2.1 Multiwarrent - Carbon Tax’s Effect on Consumer and Producer Incentives

A carbon tax would encourage firms to switch energy sources and spur innovation in alterna-tive energy


Second, use of a market-based policy instrument can achieve greenhouse gas emission reduc-tions at lower cost to regulated sectors than a command-and-control approach, which emphasizessource- and sector-based mandates for particular technologies or processes. As technologies thatreduce CO2 emissions during or post-combustion are not yet widely available, the primary way toreduce CO2 emissions is to switch to fuel sources with lower carbon content or reduce consump-tion of fossil fuels. Use of a market-based policy to establish a common price on greenhousegas emissions is necessary to provide incentives for a broad range of emission reduction optionsacross firms, households, and activities. Some emission reductions will be achieved by firms asthey switch from higher- to lower-carbon fuels and invest in energy-saving technologies. Otherreductions will come from consumers, who will respond to higher energy prices by purchasingless energy-intensive goods and changing their behavior in ways that use energy more efficiently.Greenhouse gas pricing policies also provide incentives to develop new technologies, such as car-bon capture and geological storage and zero-carbon energy sources, and encourage biologicalsequestration of greenhouse gas emissions in forestry and agriculture.

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5.2.2 Carbon Taxation Helps Capture “Low Hanging Fruit”

Carbon tax influences emitters on the margin


Mr Cowen doesn’t mention what I see as one of the most important roles of a carbon tax: as acheck on other ill-advised programmes. A carbon tax would have quickly made the net dirtinessof corn-based ethanol obvious (by helping to offset subsidies and making corn-based ethanolmore expensive). It would be more difficult to roll out and sustain such misguided programmeswith a carbon tax, and the ones that went ahead anyway would do less damage. A carbon tax isalso the easiest way to capture whatever low-hanging emission-reduction fruit is out there. Rightnow, consumers are generally indifferent between similarly-priced goods with wildly differentcarbon profiles. A carbon tax encourages consumers to realise the easy carbon gains availablefrom switching to good low-carbon substitutes wherever they exist.

5.2.3 A carbon tax would significantly decrease carbon dioxide emissions.

Sebastian Rausch and John Reilly, [Massachusetts Institute of Technology], “Carbon Tax Revenueand the Budget Deficit: A Win-Win-Win Solution?” MIT Joint Program on the Science and Policyof Global Change, August 2012.

Figure 3 shows carbon dioxide emissions in the reference case without a carbon tax and in the taxcases. The carbon tax has a significant effect on carbon dioxide emissions. The reference is verysimilar to recent EIA pr ojections that show little growth in emissions through 2030/2035. Afterthat we begin to see a pick - up in emissions as the economy continues to grow , and some of theeffects of new fuel economy standards are fully realized, and then resume growth with econ omicactivity. In the policy cases emissions are 14% below 2006 emissions in 2020, and they continue todrift down over time to about 20% below 2006 in 2050. Those cases with the investment tax creditlead to higher economic activity and somewhat higher emissions in later years but this effect isvery small — about a 0.6% difference in 2050

5.2.4 A carbon tax causes emissions reductions.

Joseph E. Aldy, [Associated Professor of Public Policy at the Harvard Kennedy School of Govern-ment], “The Case for a US Carbon Tax,” Oxford Energy Forum, February 2013.

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Energy suppliers will increase the price of the fuels they sell in response to the car-bon tax. This will effectively pass the tax down through the energy system, creatingincentives for fuel-switching and investments in more energy-efficient technologiesthat reduce CO2 emissions. The real-world experience of firms and individuals re-sponding to changing energy prices demonstrates the potential power of a carbon taxto drive changes in the investment and use of emission-intensive technologies. Thehigher gasoline prices in 2008 resulted in larger market share of more fuel-efficientvehicles, while reducing vehicle miles traveled by drivers of existing cars and trucks.In recent years, electric utilities responded to the dramatic decline in natural gasprices (and the associated increase in the relative coal-gas price ratio) by switchingdispatch from coal-fired power plants to gas-fired power plants.

Historically, higher energy prices have induced more innovation and increased thecommercial availability of more energy-efficient products, especially among energy-intensive goods. Imposing a carbon tax would provide certainty about the marginalcost of compliance, which reduces uncertainty about returns to investment decisionsand eliminates the regulatory uncertainty that inhibits energy sector investment. Ofcourse, certainty over costs results in uncertainty over emission reductions.

5.2.5 More evidence on reducing emissions

Congressional Budget Office “Effects of a Carbon Tax on the Economy and the Environment.”Congressional Budget Office, May 2013.

That $20 emission charge would reduce total U.S. emissions of CO2 between 2012and 2021 by about 8 percent, CBO estimated.3 Because rising tax rates would leadto a decline in emissions, the amount of revenues generated by a carbon tax wouldeventually decline as well (the effect on emissions during the 2012–2021 period isincorporated in the revenue estimate above). However, if the tax rate grew slowly,it could produce rising revenues for many decades and allow the economy to adjustgradually to less-emission-intensive ways of producing goods and services.

OECD Executive Report, “Taxation, Innovation and the Environment” 2010.

Taxes on pollution provide clear incentives to polluters to reduce emissions and seekout cleaner alternatives. By placing a direct cost on environmental damage, profit-maximising firms have increased incentives to economise on its use, just like otherinputs to production. Compared to other environmental instruments, such as reg-

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ulations concerning emission intensities or technology prescriptions, environmen-tally related taxation encourages both the lowest cost abatement across polluters andprovides incentives for abatement at each unit of pollution. These taxes can also bea highly transparent policy approach, allowing citizens to clearly see if individualsectors or pollution sources are being favoured over others.

Ian Parry, Chandara Veung, and Dirk Heine [IMF] “How Much Carbon Pricing is in Countries’Own Interests? The Critical Role of Co-Benefits.” International Monetary Fund, September 2014.

On average these prices are quite high, $57.5 per ton of CO2, suggesting that (most)high-emitting countries need not wait on global coordination to move ahead withcarbon pricing programs because the domestic environmental benefits (dominated,in many cases, by reductions in pollution-related deaths) exceed the mitigation costs.Nationally efficient CO2 prices vary substantially across countries however (withpopulation exposure to coal’s air emissions, road congestion, health risk valuation,pre-existing fuel taxes/subsidies, etc.), raising a question mark over the desirabilityof price harmonization measures (like linking of trading systems). Moreover, a keyfinding from prior literature on carbon pricing remains robust—if carbon pricingrevenues are overly used for low-value purposes (or revenues are forgone by free al-location in trading systems) the overall welfare impacts can be negative rather thanpositive. Ideally, carbon pricing is part of a broader tax shifting operation that low-ers other taxes in the fiscal system with the new revenues from carbon taxes (or al-lowance auctions).


Although the social cost of carbon reflects reductions in the expected damage andrisks posed by climate change, cutting CO2 emissions could have other effects aswell. In particular, researchers have examined how efforts to lower CO2 emissions—such as generating electricity from natural gas rather than from coal—might alsolower emissions of other gases. Reduced emissions of those pollutants would cre-ate additional benefits (sometimes referred to as co-benefits, or ancillary benefits).Co-benefits could include a variety of effects, such as reduced incidences of asthmaand premature death. Conversely, measures taken to decrease CO2 emissions couldcreate additional costs depending on how the emissions were reduced. Estimatingthe net change in damage, or the net co-benefit, that might result from a carbon taxbecomes more complicated if analysts take into account the entire process of fuel

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production, use, and disposal.

5.2.6 Spurring global change

Joshua Meltzer [Energy Law Journal] “A CARBON TAX AS A DRIVER OF GREEN TECHNOL-OGY INNOVATION AND THE IMPLICATIONS FOR INTERNATIONAL TRADE” Founda-tion of the Energy Law Journal, May 2015.

For instance, a carbon price in the United States would send a strong market signalthat there are commercial opportunities in finding costeffective ways to reducingCO2 emissions, whether through incremental improvements in energy efficiency orthe development of breakthrough technologies which change the energy paradigm.Maximizing this signal will require an international system that promotes interna-tional scientific collaboration but also facilitates the free flow of people, ideas, andcapital to countries where they can be best used. In this world, the United Statescould expect to be a significant beneficiary, not only from reduced CO2 emissionsbut also as the world’s talent migrates to places like Silicon Valley to produce anotherhigh-tech sector in clean energy technologies

Adele Morris [Brookings Institute] “The Many Benefits of a Carbon Tax” The Hamil-ton Project, February 2013.

Second, a carbon tax spurs serious cost-effective efforts by the United States to address the globalthreat of climatic disruption. Economists widely agree that a price on carbon in the United Statesis necessary to reduce GHG emissions efficiently across a wide range of activities; with effectivediplomacy, the United States can leverage its efforts into broader and more ambitious effortsabroad. This proposal would produce about $150 billion or more in climate benefits in the firsttwo decades.

Joshua Meltzer [Energy Law Journal] “A CARBON TAX AS A DRIVER OFGREEN TECHNOLOGY INNOVATION AND THE IMPLICATIONS FORINTERNATIONAL TRADE” Foundation of the Energy Law Journal, May 2015.

A carbon tax will also incentivize the development of green technologies that can be used to re-duce CO2 emissions in the country applying the tax as well as overseas. This is because a carbontax, unlike a technology standard, creates an incentive to find multiple ways of reducing CO2emissions. As a result, a carbon tax should lead to a broader range of innovations that could alsobe applicable in other countries. The increase in innovation that would follow the introduction

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by the United States of a carbon tax should lead to new opportunities for international collabo-ration and cooperation. In some areas, the United States has already forged these ties, such aswith the U.S.-China Clean Energy Research Center, and has clean energy partnerships with Aus-tralia, Japan, and India, to name a few countries in the Asia-Pacific region. Asia-Pacific EconomicCooperation (APEC) is also working on energy issues, including promoting the development ofenergy efficiency technologies.

5.3 Link: New Technologies

5.3.1 Tesla and other electric cars

Low gas prices undermine the electric car. This means that a carbon tax could boost demandfor the technology

Brad Tuttle [covers business and personal finance for TIME Magazine], “Is cheap gas pullingthe plug on electric cars?” Fortune Magazine, April 22, 2015. http://fortune.com/2015/04/22/is-cheap-gas-pulling-the-plug-on-electric-cars/

How does the price of gas correlate to electric car sales? One might reasonably as-sume that the higher gas prices go, the more likely battery-powered vehicles are toappeal to the masses. When gas prices are cheap, on the other hand, interest in elec-tric cars would tend to fade, as the difference in the cost of charging versus fuelingup shrinks. Jessica Caldwell, director of industry analysis at Edmunds.com, has saidthat gas prices “certainly” have an effect on electric car sales. This week, Edmunds re-leased some data that may seem particularly alarming to green car enthusiasts: Thusfar in 2015, 22% of owners who traded in hybrid or electric cars did so while buyingan SUV; only 12% did such as swap three years ago. “For better or worse, it lookslike many hybrid and EV owners are driven more by financial motives rather than aresponsibility to the environment,” Caldwell said in a press release timed to coincidewith Earth Day. “Three years ago, when gas was at near-record highs, it was a loteasier to rationalize the price premiums on alternative fuel vehicles. But with today’sgas prices as low as they are, the math just doesn’t make a very compelling case.”

Sustained low oil prices could undermine electric vehicles’ viability. In the near term, thismeans fewer companies selling the cars, but in the long term, this means the EV sector will nothave earned the capital necessary to invest in transformative innovation efforts. AFF teamscan argue that a carbon tax can solve this

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Alan Neuhauser [energy, environment and STEM reporter for U.S. News & World Report],“Electric Cars are Losing the ‘Battle’ to Low Oil Prices,” US News, December 15, 2015.http://www.usnews.com/news/articles/2015-12-15/electric-cars-waging-losing-battle-to-low-oil-prices

Sales of electric and hybrid cars like the Toyota Prius, Nissan Leaf and Chevy Voltare sliding in the face of sustained and record-low oil prices, a senior Energy Depart-ment official and General Motors executive acknowledged Tuesday, undercuttingautomakers’ costly efforts to introduce vehicles that, less than two years ago, wereexpected to be heavily in demand amid expensive gasoline and increased concernabout global warming. “We are not winning that battle,” Robert Graham, director ofthe Energy Department’s “EV Everywhere Challenge,” meant to help fuel the rise ofelectric vehicles, said at a panel in the nation’s capital. “I was told…I may have thehardest job in the whole of the Department of Energy because it’s really hard whengas prices are plummeting.” Benchmark Brent and West Texas Intermediate crudeprices were hovering below $40 a barrel Tuesday afternoon – their lowest points since2009 and down from respective peaks of $112 and $105 in June 2014, when pricesbegan their tumble amid a glut of supply and sluggish global demand. With the aver-age price at the pump now flirting with $2 a gallon, sales of electric and hybrid vehi-cles have stalled. After a peak of more than 592,000 vehicles sold in 2013 – makingup nearly 4 percent of the total market – the number fell slightly to about 570,500last year and could drop below 500,000 this year, according to the Electric DriveTransportation Association. There are other factors: “We got second-generation oftechnology, folks are waiting for that,” Nick Nigro, founder of the technology con-sulting firm Atlas Public Policy, said at the panel. But, he added, “sustained lowoil prices could hurt EV viability,” and will almost certainly “affect interest in thistechnology in the near-term.” Overcoming that inertia will prove a challenge. Forone, even when electric and hybrid vehicles sales were on the rise, the lion’s share ofthat growth was coming from California, which offers generous tax rebates and hasa wealth of charging stations.

Elon Musk, founder of Tesla, has demanded a carbon tax

Matthew DeBord [Business Insider’s Transportation Editor], “Elon Musk just demanded a carbontax in Paris,” Business Insider, December 2, 2015. http://www.businessinsider.com/elon-musk-just-demanded-a-carbon-tax-in-paris-2015-12

Tesla and SpaceX CEO Elon Musk gave a speech in Paris on Wednesday at the Sor-

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bonne, and he called in no uncertain terms for a carbon tax. “We have to fix theunpriced externality,” he told the audience, shifting into the wonky quasi-academicmode that he actually appears to enjoy indulging in, when he isn’t running two com-panies and serving as the Chairman of a third, Solar City. His entire speech hingedon this simple observation: that the addition of carbon to the atmosphere is effec-tively a worldwide subsidy that’s contributing to global warming and preventing hu-manity from freeing itself from the fossil fuel era. Musk called this a “hidden carbonsubsidy of $5.3 trillion per year,” citing the IMF. In response to questions after hisspeech, he said that a good outcome of the current UN Climate Summit (COP21)taking place in France would be that governments “put their foot down” and use arevenue neutral, gradually applied carbon tax to accelerate the shift from an econ-omy driven by fossil fuels to one driven by sustainable energy. Musk is convincedthat the current fossil fuel era will end — it’s just a question of when. In his analysis,the transition will occur simply because we’ll run out of carbon-based stuff that wecan dig out of the ground and burn. But the existing carbon subsidy, in his estima-tion, is slowing down progress. He called this, variously, “the dumbest experimentin history” and “madness.” Musk isn’t a newcomer to the idea of a carbon tax. He’sbeen calling for one for years. But the evolution of his businesses and the adventof Tesla Energy, his power-storage undertaking, appear to have sharpened his pitch.And it’s important to note that Musk has never just been about building cars, or go-ing to Mars, or applying solar power more widely. He has a vision for the futurethat uses those businesses as a means to several important ends: freedom from fos-sil fuels, making us “multi-planetary,” and taking better advantage of what he callsthe “big fusion reactor in the sky,” the Sun. An interesting additional aspect of hisspeech in Paris was his continued embrace of government as part of the solution toclimate change. Some high-flying tech entrepreneurs think government is a problemand an obstacle, but Musk has never dodged the accusation that his companies havedepended on government action and funding. “There needs to be a clear messagefrom government in this regard,” he said about the implementation of a carbon tax.

5.3.2 A carbon tax encourages the development of more efficient technology


Modelling specifically on climate change, OECD (2009a) finds that carbon pricingaimed at stabilising CO2 concentration levels in the atmosphere would induce amore than three-fold increase in expenditures on energy R&D as a percentage of

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GDP (and four-fold for renewable energy R&D). As the stringency is increased,thereby leading to a higher carbon price, the level of R&D expenditures increasesmore than proportionally, given the increasing marginal costs of abatement. Despitethese increases, the translated effects on the costs of climate change mitigation aresmall: forcing R&D to remain at the baseline level in the model only increases thecosts slightly by 2052, assuming no breakthrough technologies. Yet, when backstop– or breakthrough – technologies are incorporated, the policy costs are halved, asseen in Figure 1.1.

Joshua Meltzer [Energy Law Journal] “A CARBON TAX AS A DRIVER OF GREEN TECHNOL-OGY INNOVATION AND THE IMPLICATIONS FOR INTERNATIONAL TRADE” Founda-tion of the Energy Law Journal, May 2015.

The adoption by the United States of a carbon tax will create an incentive for bothU.S. and overseas firms to innovate and develop green technologies. As outlinedabove, a carbon tax can induce innovation by incentivizing U.S. firms to innovateand produce green technologies that reduce the impact of the tax. Not all firms willbe innovators, and many will instead turn to the market to obtain the latest greentechnologies to reduce their CO2 emissions. This demand for green technologies bythe world’s largest economy will also create a strong global incentive for the devel-opment of new green technologies in other countries. Increased global innovationin green technologies will also have a range of positive spillovers. As new sourcesof R&D and opportunities for scientific collaboration open up, greater resources be-come available to fund the innovation process and the knowledge and skills to assessthe commercial viability of green technologies increases the access to and reducesthe costs of finance. These factors should drive down the costs of innovation anddevelopment of green technologies.

Jordan Ballor [The Federalist] “Why Big Oil Wants A Carbon Tax.” The Federalist, June 2015.

So one clear advantage of governments pricing carbon through a tax would be sta-bility and predictability. Even though the cost of the products these oil companiesproduce would be increased, such increases would be transparent and relativelyforthright, as opposed to the uncertainty that comes with, as the companies putit, “participating in existing carbon markets and applying ‘shadow’ carbon pricesin our own businesses to test whether investments will be viable in a world wherecarbon has a higher price.” Corporations certainly like predictability and stability inlegal and regulatory regimes, and it is prudent for them to be proactive in shaping

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those regimes wherever possible.

Monica Prasad [NYTimes] “On Carbon, Tax and Don’t Spend.” New York Times, March 2008.

Denmark avoids the temptation to maximize the tax revenue by giving the proceedsback to industry, earmarking much of it to subsidize environmental innovation.Danish firms are pushed away from carbon and pulled into environmental innova-tion, and the country’s economy isn’t put at a competitive disadvantage. So this islesson No. 1 from Denmark. The second lesson is that the carbon tax worked inDenmark because it was easy for Danish firms to switch to cleaner fuels. Danishpolicy makers made huge investments in renewable energy and subsidized environ-mental innovation. Denmark back then was more reliant on coal than the otherthree countries were (but not more so than the United States is today), so whenthe tax gave companies a reason to leave coal and the investments in renewableenergy gave them an easy way to do so, they switched. The key was providing easysubstitutes.


In addition to encouraging the adoption of known pollution abatement measures,environmentally related taxes can provide significant incentives for innovation, asfirms and consumers seek new, cleaner solutions in response to the price put onpollution. These incentives also make it commercially attractive to invest in R&D ac-tivities to develop technologies and consumer products with a lighter environmentalfootprint, either by the polluter or by a third-party innovator.

Eduardo Porter [NYTimes] “A Carbon Tax Could Bolster Green Energy” New York Times,November 2014.

New energy technologies have become decidedly more competitive. The UnitedStates’ Energy Information Administration projects that the levelized cost of onshorewind energy coming on stream in 2019 — a measure that includes everything fromcapital costs to operational outlays — could be as little as $71 per megawatt-hourmeasured in 2012 dollars, even without subsidies. This is $16 less than the lowercost projection four years ago for wind energy coming online in 2015. Similarly, pro-jections for the levelized cost of energy from photovoltaic solar cells have tumbledby more than 40 percent, much faster than the cost projections of energy from coalor natural gas.

Jordan Ballor [The Federalist] “Why Big Oil Wants A Carbon Tax.” The Federalist, June 2015.

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Late last month, six oil companies, including BP and Royal Dutch Shell, wrote a letterto the United Nations (UN) in which they argue that “a price on carbon should be akey element” of inter-governmental action to address climate change: “Pricing car-bon obviously adds a cost to our production and our products – but carbon pricingpolicy frameworks will contribute to provide our businesses and their many stake-holders with a clear roadmap for future investment, a level playing field for all energysources across geographies and a clear role in securing a more sustainable future.”

5.3.3 We need more energy innovation

Eduardo Porter [NYTimes] “Innovation Sputters in Battle Against Climate Change.” New YorkTimes, July 2015.

Perhaps most critically, the world’s collective effort to reshape energy infrastructureseems to be losing steam. In 2014, global investments in renewable energy declinedfor the fourth year in a row, to under $250 billion.The United States, the most techno-logically proficient nation on earth, could be expected to take the lead in developingnew energy alternatives. It isn’t. Awash in cheap energy from shale oil and gas — theproduct of a surge in federally funded research decades ago — America has lost sightof the goal: decarbonizing the world’s energy supply within a matter of decades.

Krauss and Bradsher [NYTimes] “Climate Deal Is Signal to Industry: The Era of Carbon Reduc-tion Is Here.” New York Times, December 2015.

By any measure, the world economy has a long way to go to break away from theuse of coal and oil that fueled progress since the Industrial Revolution. Globally,renewable energy sources are growing fast but they still account for about only 10percent of total energy supply, with most of that coming from hydroelectric power,according to a new report from the research firm Sanford C. Bernstein & Company.Solar and wind account for 1.6 percent of total energy. Some energy experts saidthat without a multinational carbon tax or other pricing of carbon, which was notspecified in the agreement, the hopes of environmentalists for a true sea change thatwill curb climate change remain challenged.

5.3.4 Carbon Tax Could Make Renewables Competitive

“Putting a Price on Carbon: An Emissions Cap or a Tax?” Forum discussion at Yale University’sEnvironment 360, May 7, 2009. http://e360.yale.edu/feature/putting_a_price_on_carbon_an_emissions_cap_or_a_tax/2148/

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Any law that places a price on carbon must achieve two basic and interrelated goals:discouraging — with increasingly painful economic consequences — the use of oil,coal, and natural gas, and encouraging the development of renewable sources of en-ergy. Two paths to this end have been proposed. The first is a cap-and-trade sys-tem, which would place progressively stricter limits on fossil fuel use; require powerplants, industries, and other major sources of greenhouse gases, to purchase permitsto discharge carbon dioxide; and establish a market in those permits. The second isan outright tax on fossil fuels. Proponents of both methods say the economic hard-ship created by higher energy prices could be offset by rebates to taxpayers. Thecap-and-trade option has attracted far more attention and has many more support-ers, including President Obama, key Congressional leaders, and an influential coali-tion of environmental groups and big businesses, including General Electric, DowChemical, Shell Oil, and Duke Energy. Congressional leaders say they hope to passa cap-and-trade bill by year’s end, but whether they can achieve that goal remains amajor question. Supporters of cap-and-trade argue that it has two main strengths.It sets a steadily declining ceiling on carbon emissions, and, by creating a marketthat rewards companies for slashing CO2 (corporations that reduce emissions belowtheir allotment can sell them on the open market), it uses the free enterprise systemto wean the country off fossil fuels and onto renewable energy. Proponents of a car-bon tax say their plan has one overriding benefit: Its simplicity. They contend thatby imposing a predictable and steadily increasing levy on fossil fuels, the carbon taxwill also drive development of alternative sources of energy.

Carbon tax bolsters alternative energies better than alternative policies

Charles Komanoff [co-director of the Carbon Tax Center] in a forum discussion, “Putting aPrice on Carbon: An Emissions Cap or a Tax,” Yale University’s Environment 360, May 7, 2009.http://e360.yale.edu/feature/putting_a_price_on_carbon_an_emissions_cap_or_a_tax/2148/

A cap-and-trade system helped curb sulfur emissions and lessen acid rain. But byany measure, the task of reducing carbon emissions and averting climate catastrophewill be orders of magnitude more massive. Decarbonizing the world’s energy systemswill entail scaling up hundreds of innovative technologies, some of which don’t yetexist, as well as rewiring humanity’s ecological consciousness. Only a carbon taxcan quickly drive the across-the-board transition from fossil fuels to renewable andefficient energy. Its key attributes make it far superior to cap-and-trade:

Price-certainty — Carbon-critical decisions — where to locate a home or facility,

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how to design a product, which products to create — must be made with the fullestknowledge of future carbon prices. The clear price signals from a ramped-up carbontax stand in stark contrast to the price volatility endemic to cap-and-trade.

Simplicity and immediacy — British Columbia enacted and implemented a carbontax in five months. North America’s only comparable carbon cap-and-trade system,covering the Northeastern U.S., took five years of negotiation and rule-making.

International harmonization — Carbon-taxing nations can easily offset import pricedifferences with a “border tax adjustment.” A cap-and-trade system offers no suchyardstick.

Transparency — With Americans recoiling from opaque, insider-driven financialinstruments, a carbon tax’s directness is gaining political traction.

Carbon tax makes dirty tech expensive


The effects of this last “win” would spread across the energy sector. With the new re-quirements for improved vehicle efficiency the higher tax - inclusive gasoline pricewould make fuel efficient vehicles more attractive to consumers and thus make iteasier for automobile producers to sell a fleet that meets the efficiency requirements.With a more efficient fleet, even though gasoline prices would rise , the actual fuelcost of driving could fall. A carbon tax would also create support for renewable fuelsand electricity. Provisions to stimulate these alternative sources have often involvedtax expenditures — investment in or production of renewable energy gives compa-nies a tax credit, thereby reducing tax revenue and aggravating the deficit. The invest-ment and production tax credits for renewable electricity are due to expire, and withthe looming deficit it would be more difficult to justify their continuation. A car-bon tax would continue to provide encouragement for these technologies by makingdirtier technologies more expensive, and raise revenue rather than spend it.

5.3.5 Enhanced Oil Recovery/Sequestration

A carbon tax could make sequestration cost-effective

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N.Z. Muradov, T.N. Veziroglu [In order: Florida Solar Energy Center at the Univer-sity of Central Florida, Clean Energy Research Institute at the University of Miami],From hydrocarbon to hydrogen–carbon to hydrogen economy, International Journalof Hydrogen Energy, Volume 30, Issue 3, March 2005, Pages 225-237, ISSN 0360-3199,http://dx.doi.org/10.1016/j.ijhydene.2004.03.033. (http://www.sciencedirect.com/science/article/pii/S0360319904001685)

There have been some estimates reported in the literature on the economics of CO2sequestration associated with hydrogen production from fossil fuels. Thus, accord-ing to Audus et al. [6], the capture and disposal of CO2 (80–85% of CO2 capturedfrom the concentrated streams after PSA) add about 25–30% to the cost of hydro-gen produced by the SMR. The net cost of CO2 disposal, however, could be signif-icantly reduced if CO2 sequestration is accompanied by enhanced oil recovery, orthe hydrogen plant is located near depleted NG wells where recovered CO2 could bere-injected [7]. The capture and disposal of CO2 from diluted stack gases is muchmore costly (according to one estimate, $35–264 per ton of CO2[8]) compared toconcentrated streams. It was estimated that a carbon tax of $100–300/ton would benecessary to make CO2 sequestration viable with current technology [9]. The tech-nical feasibility of CO2 sequestration has already been proven on large-scale systems,for example, deep saline aquifer disposal of CO2 at Sleipner West field in the NorthSea by Statoil (as a response to the carbon tax of $50/ton imposed by the Norwegiangovernment) [9]. Over 28 million metric tons per year of CO2 is currently beingsequestered for enhanced oil recovery in Texas and New Mexico [10].

Carbon sequestration reduces the economic sting of cutting emissions

Damian Carrington [the head of environment at the Guardian], “IPCC: rapid carbon emis-sion cuts vital to stop severe impact of climate change,” The Guardian, November 2, 2014.http://www.theguardian.com/environment/2014/nov/02/rapid-carbon-emission-cuts-severe-impact-climate-change-ipcc-report

Tackling climate change need only trim economic growth rates by a tiny fraction,the IPCC states, and may actually improve growth by providing other benefits, suchas cutting health-damaging air pollution. Carbon capture and storage (CCS) – thenascent technology which aims to bury CO2 underground – is deemed extremelyimportant by the IPPC. It estimates that the cost of the big emissions cuts requiredwould more than double without CCS. Pachauri said: “With CCS it is entirely possi-ble for fossil fuels to continue to be used on a large scale.” The focus on CCS is notbecause the technology has advanced a great deal in recent years, said Jean-Pascal

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van Ypersele, a professor at the Université Catholique de Louvain in Belgium andvice-chair of the IPCC, but because emissions have continued to increase so quickly.“We have emitted so much more, so we have to clean up more later”, he said. LinkingCCS to the burning of wood and other plant fuels would reduce atmospheric CO2levels because the carbon they contain is sucked from the air as they grow. But vanYpersele said the IPCC report also states “very honestly and fairly” that there are risksto this approach, such as conflicts with food security. In contrast to the importancethe IPCC gives to CCS, abandoning nuclear power or deploying only limited windor solar power increases the cost of emission cuts by just 6-7%. The report also statesthat behavioural changes, such as dietary changes that could involve eating less meat,can have a role in cutting emissions.

5.3.6 Alternative Energy Good - Economics

Clean energy economies would save trillions of dollars

Alana Ryan [Assistant Digital Editor at the Climate Group], “GLOBAL ECONOMY COULDSAVE US$115 TRILLION WITH CLEAN ENERGY INVESTMENT, RENEWABLES SEC-TOR ALREADY SUPPORTS 6.5 MILLION JOBS,” The Climate Group, May 13, 2014.http://www.theclimategroup.org/what-we-do/news-and-blogs/global-economy-could-save-us71-trillion-with-clean-energy-investment-65-million-people-currently-employed-in-the-industry/

A strong investment in clean energy could result in savings of US $115 trillion to theglobal economy far outweighing the initial spend, the International Energy Agency(IEA) has revealed. However, delays in moving towards greater renewable energyuse have already increased the cost of transition by 22% warns the IEA as fossil fuelpower plants continue to be built, locking in expensive and damaging high carboninfrastructure. The IEA’s 2014 edition of its annual Energy Technology Perspectives,(ETP 2014) report, examines trends in the energy sector and progress towards de-carbonization. The report notes that that there has been a significant rise in globalelectricity demand, however there is also a clear need for greater system cohesion. Akey chapter of the overall ETP 2014 is the annual progress report which has foundthat emerging economies have played a crucial role in the growth of clean energytechnology. These countries have helped to accelerate the global clean energy revo-lution, with their increased investment compensating for “slowing or more volatilerenewable power growth in Europe and the United States”, the IEA notes.

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5.4 Reduced Foreign Energy Dependence

5.4.1 Carbon Tax Reduces Foreign Energy Dependence

William Gale [he Arjay and Frances Miller Chair in Federal Economic Policy in the EconomicStudies Program at Brookings], “The Tax Favored By Most Economists,” Brookings Institution,March 12, 2013. http://www.brookings.edu/research/opinions/2013/03/12-taxing-carbon-gale

Not surprisingly, most analyses find that a carbon tax could significantly reduce emis-sions. Tufts University economist Gilbert Metcalf estimated that a $15 per ton taxon CO2 emissions that rises over time would reduce greenhouse gas emissions by14 percent. Another study estimated that the European countries’ carbon taxes havehad a significant effect on emissions reductions.

Although a carbon tax would be a new policy for the federal government, it has beenimplemented in several other countries (though not always in the manner advocatedby economists), including the Scandinavian nations, the Netherlands, Germany, theUnited Kingdom, and Australia. The Canadian provinces of Alberta and Quebecadopted carbon taxes in 2007, followed by British Columbia in 2008. Meanwhile,California, the 9th largest economy in the world, has recently initiated a cap-and-trade system, which auctions carbon permits to companies.Estimates suggest that awell-designed tax in the United States could raise amounts ranging up to 1 percentof GDP, revenue that could and should be used to reform other taxes or addressthe country’s substantial and unsustainable medium- and long-term budget deficits.A carbon tax could have other benefits too, including reducing the American econ-omy’s dependence on foreign sources of energy and creating better market incentivesfor energy conservation, the use of renewable energy sources, and the production ofenergy-efficient goods. The permanent change in price signals from enacting a car-bon tax would stimulate new private sector research and innovation in developingenergy-saving technologies and in harnessing renewable energy. The implementa-tion of a carbon tax also offers opportunities to reduce and reform federal spendingon other energy-related programs.

5.4.2 Political Impacts

Dependence threatens American foreign policy interests globally

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David Goldwyn and Michael Granoff [In order: President of Goldwyn InternationalStrategies, Senior Manager at Pomona Capital], “Additional View” in National Secu-rity Consequences of U.S. Oil Dependency, ed. John Deutch and James R. Schlesinger,INDEPENDENT TASK FORCE REPORT No. 58, Council on Foreign Relations, 2006.http://www.cfr.org/content/publications/attachments/EnergyTFR.pdf

We subscribe to the report’s analysis and recommendations, but the report under-states the gravity of the threat that energy dependence poses to U.S. national secu-rity. Energy is a central challenge to U.S. foreign policy, not simply one of manychallenges. Global dependence on oil is rapidly eroding U.S. power and influence be-cause oil is a strategic commodity largely controlled by regressive governments and acartel that raises prices and multiplies the rents that flow to oil producers. These rentshave enriched and emboldened Iran, enabled President Vladamir Putin to under-mine Russia’s democracy, entrenched regressive autocratsinAfrica,forestalled actionagainst genocide in Sudan, and facilitated Venezuela’s campaign against free trade inthe Americas. Most gravely, oil consumers are in effect financing both sides of thewar on terrorism.

Dependence causes simultaneous policy constraining and military overburdening

Ronald E. Minsk [Director to the National Economic Council (NEC) at the White House],“PLUGGING CARS INTO THE GRID: WHY THE GOVERNMENT SHOULD MAKE ACHOICE & POLICIES TO PROMOTE DEPLOYMENT OF GRID-ENABLED VEHICLES,”MIT Energy Initiative, no date. https://mitei.mit.edu/system/files/minsk.pdf

While the economic costs of U.S. oil dependence are quantifiable, the national secu-rity costs are generally not. There are at least two primary consequences of Amer-ica’s heavy reliance on petroleum. The first is that U.S. foreign policy is constrainedin dealing with a range of foreign policy priorities in oil-producing countries andregions. Second, and closely related, is that the U.S. military is overburdened andoverexposed by our need to maintain secure transit routes for global oil supplies.

5.4.3 Economic Impacts

Independence insulates the US from shocks

“THE ENERGY REVOLUTION: ECONOMIC BENEFITS AND THE FOUNDATION FORA LOW-CARBON ENERGY FUTURE” in Economic Report of the President (Washing-

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ton, DC: Government Publishing Office, 2015), available at: http://web.colby.edu/joules-to-dollars/files/2015/03/2015_erp_chapter_6.pdf

The second element of the President’s energy strategy is improving energy security.Lower net oil imports reduce the macroeconomic vulnerability of the United Statesto foreign oil supply disruptions. In today’s domestic liquid fuels markets and glob-ally integrated oil markets, a sudden international supply disruption means a sharpjump in prices. The combina� tion of declining gasoline demand, increasing do-mestic crude oil production, and increasing use of biofuels, however, enhances theresilience of the U.S. economy to these oil price shocks. Although internationaloil supply shocks and oil price volatility will always present risks, reductions in netpetroleum imports and the lower domestic oil consumption will reduce those risks.To further reduce net oil imports in the long run, the Administration has taken stepsto curb petroleum demand by aggressively raising standards for vehicle fuel economy.Efforts are also being made to boost the use of biofuels, elec� tric vehicles, naturalgas, and other petroleum substitutes.

5.5 Environmental Impacts

5.5.1 Fossil Fuel Usage Emits Toxic Gas

Humans pump carbon dioxide into the atmosphere

“Overview of Greenhouse Gasses: Carbon Dioxide Emissions,” United States Environmental Pro-tection Agency. December 11, 2015. http://www3.epa.gov/climatechange/ghgemissions/gases/co2.html

Carbon dioxide (CO2) is the primary greenhouse gas emitted through human ac-tivities. In 2013, CO2 accounted for about 82% of all U.S. greenhouse gas emissionsfrom human activities. Carbon dioxide is naturally present in the atmosphere as partof the Earth’s carbon cycle (the natural circulation of carbon among the atmosphere,oceans, soil, plants, and animals). Human activities are altering the carbon cycle—both by adding more CO2 to the atmosphere and by influencing the ability of naturalsinks, like forests, to remove CO2 from the atmosphere. While CO2 emissions comefrom a variety of natural sources, human-related emissions are responsible for theincrease that has occurred in the atmosphere since the industrial revolution. [1] Themain human activity that emits CO2 is the combustion of fossil fuels (coal, naturalgas, and oil) for energy and transportation, although certain industrial processes and

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land-use changes also emit CO2. The main sources of CO2 emissions in the UnitedStates are described below.

5.5.2 Carbon Dioxide Emissions Cause Climate Change

The Greenhouse Effect Explained

Nancy Huddleston [Communications Director at the National Academy of Sciences], ClimateChange: Evidence, Impacts, and Choices, (Washington, DC: National Research Council of the Na-tional Academies of Sciences, 2013), 2nd edition. Available at: http://dels.nas.edu/resources/static-assets/materials-based-on-reports/booklets/Climate-Change-Lines-of-Evidence.pdf

As early as the 1820s, scientists began to appreciate the importance of certain gasesin regulating the temperature of the Earth (see Box 1). Greenhouse gases—whichinclude carbon dioxide (CO2), methane, nitrous oxide, and water vapor— act like ablanket in the atmosphere, keeping heat in the lower atmosphere. Although green-house gases comprise only a tiny fraction of Earth’s atmosphere, they are critical forkeeping the planet warm enough to support life as we know it (Figure 3). Here’s howthe “greenhouse effect” works: as the Sun’s energy hits Earth, some of it is reflectedback to space, but most of it is absorbed by the land and oceans. This absorbed en-ergy is then radiated upward from Earth’s surface in the form of heat. In the absenceof greenhouse gases, this heat would simply escape to space, and the planet’s averagesurface temperature would be well below freezing. But greenhouse gases absorb andredirect some of this energy downward, keeping heat near Earth’s surface. As concen-trations of heattrapping greenhouse gases increase in the atmosphere, Earth’s naturalgreenhouse effect is enhanced (like a thicker blanket), causing surface temperaturesto rise (Figure 3). Reducing the levels of greenhouse gases in the atmosphere wouldcause a decrease in surface temperatures.

Carbon Emissions and Temperature Increases Exhibit Positive Feedback

Marten Scheffer, Victor Brovkin, and Peter Cox [Affiliations in order: Aquatic Ecology and Wa-ter Quality Management Group in the Department of Environmental Sciences at WageningenUniversity, Potsdam Institute for Climate Impact Research, and the Met Office Hadley Centrefor Climate Science and Services], “Positive feedback between global warming and atmosphericCO2 concentration inferred from past climate change,” Geophysical Research Letters, vol. 33, 2006.http://onlinelibrary.wiley.com/doi/10.1029/2005GL025044/epdf

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There is good evidence that higher global temperatures will promote a rise of green-house gas levels, implying a positive feedback which will increase the effect of anthro-pogenic emissions on global temperatures. However, the magnitude of this effectpredicted by the available models remains highly uncertain, due to the accumula-tion of uncertainties in the processes thought to be involved. Here we present analternative way of estimating the magnitude of the feedback effect based on recon-structed past changes. Linking this information with the mid-range IPCC estimationof the greenhouse gas effect on temperature we suggest that the feedback of globaltemperature on atmospheric CO2 will promote warming by an extra 15-78% on acentury-scale. This estimate may be conservative as we did not account for synergis-tic effects of likely temperature moderated increase in other greenhouse gases. Oursemiempirical approach independently supports process based simulations suggest-ing that feedback may cause a considerable boost in warming.

We are nearing C02 tipping points, but a carbon tax can help

Derek Lemoinea and Christian P. Traeger [Credentials in order: Professor of Economics at theUniversity of Arizona and Professor of Agricultural and Resource Economics at the University ofCalifornia at Berkeley], Playing the Climate Dominoes: Tipping Points and the Cost of DelayingPolicy. Economic Policy, 6 (2014), 1. https://are.berkeley.edu/~traeger/pdf/Lemoine%20Traeger_Tipping%20Domino.pdf

Greenhouse gas emissions can trigger irreversible regime shifts in the climate sys-tem, known as tipping points. Multiple tipping points affect each other’s probabilityof occurrence (a “domino effect”) and they reinforce each other’s economic impacts.Today’s optimal mitigation policy has to consider all possible future interactions be-tween tipping points, economic activity, and policy responses over long time hori-zons. We find that the presence of three commonly discussed tipping points nearlydoubles the currently optimal carbon tax, reducing peak warming along the optimalpath by approximately 1 degree Celsius. Our study also provides the first quantifi-cation of the expected cost of delaying optimal policy in the face of tipping points,which is comparable to the annual output of several large nations. This novel as-sessment of the policy implications of tipping points bridges the increasingly severedivide between scientific concerns about abrupt climate change and economic analy-ses. Furthermore, we demonstrate that even the recognition of an already-triggeredtipping point can have substantial economic value, complementing the scientific lit-erature’s focus on the recognition of early warning signals.

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5.5.3 Climate Change Impacts

Flooding

Coral Davenport, [covers energy and climate policy at NYT]. Rising Seas. The New YorkTimes, March 28, 2014. http://www.nytimes.com/interactive/2014/03/27/world/climate-rising-seas.html. Accessed 1 January 2016

While seas are rising globally, the phenomenon is not occurring at even rates aroundthe world. A 2012 study by the U.S. Geological Survey concluded that sea levelsalong the East Coast will rise three to four times faster than the global average overthe next century. While levels worldwide are expected to rise an average of two tothree feet by 2100, they could surge more than six feet along the Atlantic seaboard.The study named Boston, New York, and Norfolk, Va., as the three most vulnerablemetropolitan areas. Another study found that just a 1.5-foot rise in sea level would ex-pose about $6 trillion worth of property to coastal flooding in the Baltimore, Boston,New York, Philadelphia and Providence, R.I., areas. That raises huge questions aboutthe fate of Boston Harbor, where developers have poured millions into constructionprojects. Planners are steeling for a future in which storm surges flood huge swathsof Boston. They have put together a climate action plan outlining how the city canbetter prepare for disaster. Miami, one of the nation’s most populous cities, is builtatop a porous limestone foundation on the South Florida coast, making it extremelyvulnerable to rising sea levels, according to the federal government’s 2013 draft Na-tional Climate Assessment. As Arctic ice continues to melt, the waters around Miamicould rise up to 24 inches by 2060, according to a report by the Southeast Florida Re-gional Climate Change Compact. Residents say they are already experiencing theeffects as roads and outdated sewage systems flood. The porous limestone creates aunique threat as seawater seeps through the city’s foundations.

Mass Migration and Economic Disruptions

“Climate Change And Environmentally Induced Migration,” United Nations Environmental Pro-gramme, no date available. http://www.unep.org/conflictsanddisasters/Policy/DisasterRiskReduction/ClimateChangeAndMigration/tabid/282/language/en-US/Default.aspx

It is now increasingly recognized that environmental degradation and climate changeare major drivers in both forced and voluntary migration, and that this trend is setto continue and substantially increase in scale in decades to come. Poverty, fail-ing ecosystems, vulnerability to natural hazards and gradual climate-driven envi-

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ronmental changes are all linked to migration. Indeed it is expected that climatechange will significantly affect migration in three distinct ways. First, the effects ofwarming and drying in some regions will reduce agricultural potential and under-mine “ecosystem services” such as clean water and fertile soil. Second, the increasein extreme weather events – in particular, heavy precipitation and resulting flashor river floods in tropical regions – will affect ever more people and generate massdisplacement. Finally, sea-level rise will permanently destroy extensive and highlyproductive low-lying coastal areas that are home to millions of people who will haveto relocate permanently. While the consequences of mass migration are not de factonegative, its main impacts overwhelmingly are. These include escalating humanitar-ian crises, rapid urbanization and associated slum growth, and stalled development.

War over remaining scarce resources

Mark Townsend and Paul Harris [Home Affairs Editor of the Observer, US correspondent for theGuardian and the Observer], “Now the Pentagon tells Bush: climate change will destroy us,” TheGuardian, February 21, 2004. http://www.theguardian.com/environment/2004/feb/22/usnews.theobserver

Climate change over the next 20 years could result in a global catastrophe costingmillions of lives in wars and natural disasters.. A secret report, suppressed by US de-fence chiefs and obtained by The Observer, warns that major European cities will besunk beneath rising seas as Britain is plunged into a ‘Siberian’ climate by 2020. Nu-clear conflict, mega-droughts, famine and widespread rioting will erupt across theworld. The document predicts that abrupt climate change could bring the planet tothe edge of anarchy as countries develop a nuclear threat to defend and secure dwin-dling food, water and energy supplies. The threat to global stability vastly eclipsesthat of terrorism, say the few experts privy to its contents. ‘Disruption and conflictwill be endemic features of life,’ concludes the Pentagon analysis. ‘Once again, war-fare would define human life.’ The findings will prove humiliating to the Bush admin-istration, which has repeatedly denied that climate change even exists. Experts saidthat they will also make unsettling reading for a President who has insisted nationaldefence is a priority. The report was commissioned by influential Pentagon defenceadviser Andrew Marshall, who has held considerable sway on US military thinkingover the past three decades. He was the man behind a sweeping recent review aimedat transforming the American military under Defence Secretary Donald Rumsfeld.Climate change ‘should be elevated beyond a scientific debate to a US national se-curity concern’, say the authors, Peter Schwartz, CIA consultant and former headof planning at Royal Dutch/Shell Group, and Doug Randall of the California-based

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Global Business Network. An imminent scenario of catastrophic climate change is‘plausible and would challenge United States national security in ways that should beconsidered immediately’, they conclude. As early as next year widespread floodingby a rise in sea levels will create major upheaval for millions.

5.5.4 Carbon Dioxide Emissions Cause Resperatory Diseases

Pollution-caused resperatory diseases kill thousands

Caiazzo, F., Ashok, A., Waitz, I. A., Yim, S. H. L., & Barrett, S. R. H. [Laboratory for Avi-ation and the Environment, Department of Aeronautics and Astronautics, MassachusettsInstitute of Technology] (2013). Air pollution and early deaths in the United States. Part I:Quantifying the impact of major sectors in 2005. Atmospheric Environment, 79, 198–208.doi:10.1016/j.atmosenv.2013.05.081

Combustion emissions adversely impact air quality and human health. A multiscaleair quality model is applied to assess the health impacts of major emissions sectorsin United States. Emissions are classified according to six different sources: electricpower generation, industry, commercial and residential sources, road transporta-tion, marine transportation and rail transportation. Epidemiological evidence isused to relate long-term population exposure to sector-induced changes in the con-centrations of PM2.5 and ozone to incidences of premature death. Total combustionemissions in the U.S. account for about 200,000 (90% CI: 90,000e362,000) prematuredeaths per year in the U.S. due to changes in PM2.5 concentrations, and about 10,000(90% CI: “1000 to 21,000) deaths due to changes in ozone concentrations. The largestcontributors for both pollutant-related mortalities are road transportation, causingw53,000 (90% CI: 24,000e95,000) PM2.5-related deaths and w5000 (90% CI:”900 to11,000) ozonerelated early deaths per year, and power generation, causing w52,000(90% CI: 23,000e94,000) PM2.5- related and w2000 (90% CI: “300 to 4000) ozone-related premature mortalities per year. Industrial emissions contribute to w41,000(90% CI: 18,000e74,000) early deaths from PM2.5 and w2000 (90% CI: 0 e4000) earlydeaths from ozone. The results are indicative of the extent to which policy measurescould be undertaken in order to mitigate the impact of specific emissions from dif-ferent sectors d in particular black carbon emissions from road transportation andsulfur dioxide emissions from power generation.

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5.6 Economic Benefits of the tax

5.6.1 Surface rundown of the revenue related benefits

Budget Balancing

Robert Frank [NYTimes] “Carbon Tax Silence, Overtaken by Events.” New York Times, August2012.

A carbon tax would also serve two other goals. First, it would help balance futurebudgets. Tens of millions of Americans are set to retire in the next decades, and, asa result, many budget experts agree that federal budgets simply can’t be balancedwith spending cuts alone. We’ll also need substantial additional revenue, most ofwhich could be generated by a carbon tax. If new taxes are unavoidable, why notadopt ones that not only help balance the budget but also help make the economymore efficient? By reducing harmful emissions, a carbon tax fits that description. Asecond benefit would occur if a carbon tax were approved today but phased in gradu-ally, only after the economy had returned to full employment. High unemploymentpersists in part because businesses, sitting on mountains of cash, aren’t investing itbecause their current capacity already lets them produce more than people want tobuy. News that a carbon tax was coming would create a stampede to develop energy-saving technologies. Hundreds of billions of dollars of private investment might beunleashed without adding a cent to the budget deficit.

Tax Cuts

Sebastian Rausch and John Reilly [MIT] “Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?” Massachussetts Institute of Technology, August 2012.

Bush-era tax cuts are scheduled to expire at the end of 2012, leading to interest inraising revenue through a carbon tax. This revenue could be used to either cut othertaxes or to avoid cuts in Federal programs. There is a body of economic research sug-gesting that such an arrangement could be a winwin-win situation. The first win—Congress could reduce personal or corporate income tax rates, extend the payroll taxcut, maintain spending on social programs, or some combination of these options.The second win—these cuts in income taxes would spur the economy, encourag-ing more private spending and hence more employment and investment. The thirdwin—carbon dioxide (CO2) pollution and oil imports would be reduced.

Rebates, other objectives

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World Resources Institute Press Release “Carbon Pricing in US Would Deliver Multiple Benefits,Reduce Emissions.” World Resources Institute, April 2015.

By establishing a value on carbon, the financial burden of harmful pollution will nolonger be borne by taxpayers alone. Carbon pricing appropriately shifts responsi-bility to those whose energy and electricity generation or manufacturing producesemissions. Far-sighted companies can move quickly to invest in efficient technolo-gies that rely on less energy and emit fewer heat-trapping emissions. They will berewarded by a parallel growth in consumer demand for more affordable goods andservices. One of the more attractive co-benefits of carbon pricing is the flexibilityfor revenue distribution, according to the paper. Revenues can fund tax cuts, re-funds and rebates, or be used to achieve additional public policy objectives, suchas reduce budget deficits, finance innovation and infrastructure, and help ease thetransition away from carbon-intensive goods and services. Carbon pricing is well-established and has been successfully implemented in many countries and regions.Already, close to 40 countries and more than two dozen sub-national jurisdictionsare utilizing carbon-pricing programs.

Small cost

Robert Frank [NYTimes] “Carbon Tax Silence, Overtaken by Events.” New York Times, August2012.

The good news is that we could insulate ourselves from catastrophic risk at relativelymodest cost by enacting a steep carbon tax. Early studies by the IntergovernmentalPanel on Climate Change estimated that a carbon tax of up to $80 per metric ton ofemissions — a tax that might raise gasoline prices by 70 cents a gallon — would even-tually result in climate stability. But because recent estimates about global warminghave become more pessimistic, stabilization may require a much higher tax. Howhard would it be to live with a tax of, say, $300 a ton? If such a tax were phasedin, the prices of goods would rise gradually in proportion to the amount of carbondioxide their production or use entailed. The price of gasoline, for example, wouldslowly rise by somewhat less than $3 a gallon. Motorists in many countries alreadypay that much more than Americans do, and they seem to have adapted by drivingsubstantially more efficient vehicles.

Revenue recycling

Ian Parry [IMF] “Reducing Carbon Emissions.” Resources for the Future, Summer 1997.

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This is not the end of the story, however, because a carbon tax would raise revenuesfor the government. These revenues could be used to reduce other taxes in the econ-omy, such as personal and corporate taxes, and thereby reduce the distortion in thelevel of employment and investment. The economic gain from this so-called revenue-recycling effect could reduce the overall economic costs of a carbon tax significantly.

Huge revenue windfalls


The amount of revenues that a U.S. carbon tax might raise would depend on the rateof the tax, how broadly it was applied, and the extent to which it led to declines inCO2 emissions. Those revenues could be significant. For example, CBO estimatedin 2011 that setting a price of $20 per metric ton on greenhouse gas emissions in theUnited States in 2012 and raising that price at a nominal rate of 5.6 percent per yearwould yield a total of $1.2 trillion in revenues over the 2012–2021 period.2 Nearly96 percent of that amount—or an average of $115 billion a year during that period—would come from the charge levied on CO2 emissions (with the rest coming fromthe charge on emissions of other greenhouse gases). Such revenues would be roughlyequivalent to the total amount that the U.S. government collects each year from excisetaxes (including taxes on gasoline, tobacco, and alcohol) and would be much greaterthan annual receipts from estate and gift taxes or customs duties.

5.6.2 Revenue Raising and The Budget

Carbon tax would boost the budget


A carbon tax has the potential to raise significant revenues for the government. Therevenue raised could be tens or hundreds of billions of dollars each year, dependingon the carbon price. For example, a carbon tax starting at about $16 per ton of CO2in 2014 and rising four percent over inflation would raise more than $1.1 trillion inthe first ten years, and more than $2.7 trillion over a 20 year period. While there aremany possible ways these revenues could be used, a large body of research suggeststhat using these revenues to reduce existing taxes on labor and capital—also known

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as a tax swap—can help lower the economy-wide costs of the program.6 These costsinclude the direct compliance costs that firms, such as electric power producers andoil refineries, will incur in order to reduce their emissions. They also include theindirect costs brought about through price changes that take place throughout therest of the economy and which can further affect labor supply and investment andlower long-run economic growth. Imposing a carbon tax will impose costs on theeconomy but the magnitude of those costs is directly related to how the revenue isused.

A carbon tax could resolve the budget deficit.


The U . S . faces the challenge of bringing its Federal budget deficit under control.There is general recognition that to do so will likely require both difficult budget cutsand enhancements to revenue. One option for revenue enhancement suggested in anearlier Congressional Budget Office (CBO) analysis is the introduction of a carbontax starting at $20 per ton and r ising gradually over time. The CBO estimated thatsuch a carbon tax could raise about $1.25 trillion over the 2012 – 2022 period. Wesimulated a similar carbon tax starting in 2013, given that a start in 2012 is no longerrealistic. We find a similar, if somewhat higher 10 - year revenue gain of about $1.5trillion. We have slightly higher revenue at the start of the period because we find alittle less abatement, and thus higher emissions. Because the period is extended wea lso gain from adding in revenue from the year 2023, when the carbon price andrevenue is considerably higher than it would have been in 2012.

A carbon tax could raise substantial budget revenues.

Donald B. Marron [Urban Institute and Urban-Brookings Tax Policy Center] and Eric J. Toder[Urban-Brookings Tax Policy Center], “Tax Policy Issues in Designing a Carbon Tax,” AmericanEconomic Review: Papers & Proceedings 2014, 104(5).

A carbon tax could raise substantial reve - nues. The Congressional Budget Office (2013 ) recently estimated that one possible tax—$25 per ton on most carbon dioxideemissions in energy production plus some other gases emit - ted in manufacturing,increasing at 2 percent real each year—would raise about $1 trillion over the nextdecade. A key question is what to do with it. One possibility is to offset some or allthe burden created by the new tax.

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The carbon tax can raise significant revenues for the government.

Center for Climate and Energy Solutions, “Options and Considerations for a Federal Carbon Tax,”February 2013, http://www.c2es.org/publications/options-considerations-federal-carbon-tax

A carbon tax has the potential to raise significant revenues for the government. Therevenue raised could be tens or hundreds of billions of dollars each year, dependingon the carbon price. For example, a carbon tax starting at about $16 per ton of CO2in 2014 and rising four percent over inflation would raise more than $1.1 trillion inthe first ten years, and more than $2.7 trillion over a 20 year period.5 While there aremany possible ways these revenues could be used, a large body of research suggeststhat using these revenues to reduce existing taxes on labor and capital—also knownas a tax swap—can help lower the economy-wide costs of the program.6 These costsinclude the direct compliance costs that firms, such as electric power producers andoil refineries, will incur in order to reduce their emissions. They also include theindirect costs brought about through price changes that take place throughout therest of the economy and which can further affect labor supply and investment andlower long-run economic growth. Imposing a carbon tax will impose costs on theeconomy but the magnitude of those costs is directly related to how the revenue isused.

Various ways to use revenue


Of course, offsetting tax reductions are not the only potential use for carbon tax rev-enue. Transitional assistance might be offered to com - munities and workers whowould be particularly hard hit by a carbon tax, such as those involved in coal mining.Others have recommended using some of the revenue for environmental remedia -tion, clean energy investments, or research on new energy technologies, while stillothers see a carbon tax as a way to reduce future deficits. Selecting among these op-tions will be essen - tial to building a political coalition for enacting a carbon tax andwould play a primary role in determining the net benefits of such a policy.

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5.6.3 The carbon tax allows for general tax cuts that improve overall economicperformance.

Carbon tax revenues allow for economy boosting tax cuts


In cases without the investment tax credit, we find that this combinat ion of a carbontax with general tax cuts improves overall economic performance. As a result weget other benefits of the carbon tax, reduced emissions and lower oil imports, at nocost. This surprisingly positive result comes through the tax interaction e ffect thathas been widely studied. By avoiding increases in general income taxes we avoidtheir drag on the economy, and the avoided drag is actually greater than the directcost of the carbon tax. The economy thus benefits. In the cases where we applyon e half of the carbon tax revenue toward an investment tax credit we see lowerwelfare in early years (through 2025) but then the added investment begins to offsetthe carbon tax cost, leading to positive effects on economic welfare. The investmenttax cred it leads to continued improvement in economic performance and by 2030 or2035 welfare in these cases begins to exceed cases without the investment tax credit,and their benefit continues to grow. We also consider devoting the revenue to socialprograms, an d somewhat surprisingly this also led to near - term gains in welfarebecause it effectively transferred income from wealthier households who spend lessof their income. But this case is somewhat less beneficial to the economy as a wholein the long term bec ause of less savings and investment.

A carbon tax can allow revenue-neutral relief on personal and corporate income taxes.


While raising taxes is never popular, a carbon tax is potentially a win - win - winsolution. First, carbon tax revenue can allow revenue - neutral relief on personalincome t axes, corporate income tax, or payroll taxes , or could be used to avoid orlimit cuts to social programs (Medicare, Medicaid, Social Security, Food Assistance)or Defense spending. Among the revenue raising options evaluated by the CBO was acarbon tax tha t would start at $20 in 2012 and rise at a nominal rate of 5.8% per year,

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approximately 4% in real terms given the underlying inflation rate they projected.By their estimate it would raise on the order of $1.25 trillion over a 10 - year period.Second, econ omic analysis has demonstrated the potential for a tax interaction effectwhereby recycling of revenue from a carbon tax to offset other taxes could reduce thecost of a carbon policy or even under some circumstances boost economic welfare(Bovenberg and G oulder, 1996). The Bush tax cuts and other temporary tax reliefmeasures are due to expire at the end of 2012. A carbon tax c ould allow their furtherextension . And, third, a carbon tax would lower fossil fuel use, reducing carbondioxide emissions ; and lowering oil imports.

5.6.4 Carbon Tax Could Facilitate Income Redistribution

Carbon tax could be a progressive tax


Some tax-shifting options could lessen the burden on low-income households whilestill helping to lower economy-wide costs, though by a smaller amount than optionsaimed at lowering these aggregate costs alone.9 These include raising existing thresh-old exemptions for personal income taxes and introducing similar threshold exemp-tions for payroll taxes. Other options, including lump-sum rebates to households ortargeted energy assistance, could be implemented with the sole objective of provid-ing greater relief to the lowest income families and the elderly or unemployed.

Carbon tax revenues could be redistributed

Aparna Mathur [Contributor to Forbes Magazine], “A Carbon Tax Can Be Designed To Be Pro-Poor,” Forbes, September 29, 2015. http://www.forbes.com/sites/aparnamathur/2015/09/29/a-carbon-tax-can-be-designed-to-be-pro-poor/#2715e4857a0b4539e5c0129b

First, money can be returned to households through a lumpsum rebate. In a recentpaper, Adele Morris and I calculated that if 11 percent of the revenues were returnedto the bottom 20 percent of the income distribution, then on average those house-holds would not be worse off than before the tax. Another policy paper from theCenter on Budget and Policy Priorities shows that revenues could be used to helplow-income households through provisions of refundable tax credits or through ex-pansions of SNAP benefits for low-income households. In another paper, Roberton

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Williams et al. show that a lumpsum rebate to all households would be progressiveas low-income households would be made better off. The driving force behind thesestudies is that it is possible to design a carbon tax policy in such a manner that it doesnot conflict with helping those in poverty.

5.6.5 Income Redistribution Good

Inequality hurts the economy: Stats

“Focus on Inequality and Growth,” Organization for Economic Cooperation and Development,December 2014. http://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf

New OECD analysis suggests that income inequality has a negative and statisticallysignificant impact on medium-term growth. Rising inequality by 3 Gini points, thatis the average increase recorded in the OECD over the past two decades, would dragdown economic growth by 0.35 percentage point per year for 25 years: a cumulatedloss in GDP at the end of the period of 8.5 per cent. What does this imply for thegrowth path of individual countries? Figure 2 shows by how much the GDP growthrate would have increased or decreased over the period 1990- 2010 had inequalitynot changed between 1985 and 2005 (The most recent inequality trends since thenare not taken into account as they affect future growth patterns). Rising inequalityis estimated to have knocked more than 10 percentage points off growth in Mexicoand New Zealand, nearly 9 points in the United Kingdom, Finland and Norway andbetween 6 and 7 points in the United States, Italy and Sweden. On the other hand,greater equality prior to the crisis helped increase GDP per capita in Spain, Franceand Ireland.

Inequality hurts the economy: explanation

“Focus on Inequality and Growth,” Organization for Economic Cooperation and Development,December 2014. http://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf

Analysis drawing from education data and the recent OECD Adult Skills Survey (PI-AAC) shows that the human capital of people whose parents have low levels of educa-tion deteriorate, as income inequality rises. By contrast, there is little or no effect forthe human capital of people with middle or high levels of parental educational back-ground. These patterns hold for both the quantity of education (e.g. schooling years)and its quality (e.g. skills proficiency). Figure 3 illustrates them for numeracy scores:

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a 6 points increase in income inequality (corresponding to the US-Canada differen-tial in 2010) would lower numeracy by around 6 points among low-background in-dividuals. This is nearly 40% of the gap relative to individuals with medium parentalbackgrounds. In sum, the analysis suggests that inequality significantly shapes theopportunities of education and upward mobility of disadvantaged individuals.

5.7 Economy

5.7.1 A carbon tax would benefit the economy overall.

Warwick McKibbin et al [ANU Brookings], “The Potential Role of a Carbon Tax in U.S. FiscalReform,” Climate and Energy Economics Discussion Paper, July 24, 2012.

The use of the carbon tax revenue affects the policy’s broad economic impacts as wellas the composition of GDP across consumption, investment and net exports. Formost of the scenarios , the carbon tax tends to lower GDP slightly, reduce in vest-ment and exports, and increase imports. The effect on consumption varies acrosspolicies and can be positive if households receive the revenue as a lump sum transfer.Using the revenue for a cut in the marginal tax rates on capital income , however, issignificantly different than the other policies. In that case, investment booms, em-ployment rises, consumption declines slightly, imports increase, and overall GDPrises significantly relative to baseline through about 2040. Thus, adopting a carbontax and using the revenue to redu ce capital taxes would achieve two goals: reduc-ing CO 2 emissions significantly and expanding short - run employment and theeconomy.

5.7.2 The social cost of carbon is massive.


Estimates of the social cost of carbon thus vary widely. In a survey of 75 studies, Tol( 2013 ) found 588 estimates based on different integrated assessment models, policyassump - tions, and discount rates. The mean social cost of carbon in those studieswas $196 per ton in 2010 dollars with a standard deviation of $322, with the larger

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estimates reflecting very low dis - count rates. Controlling for differences in dis -count rates narrows that uncertainty but does not eliminate it. At a 3 percent realdiscount rate, the mean social cost was $25 per ton with a standard deviation of $22.

5.8 Carbon tax would start the discussion for more enviromental policies

5.8.1 Carbon taxation could spur political activism, which is desperately needed

David Gelles [NYTimes] “To Achieve Paris Climate Goals, U.S. Will Need New Laws” New YorkTimes, December 2015.

One approach that could deliver significant gains, and be introduced on a nationalscale and across industries, is a carbon tax, or carbon cap-and-trade system, whichwould establish a price for carbon emissions. California has a cap-and-trade pro-gram, as do a growing number of other countries. But national efforts have notgained traction in Congress. For many business groups, the political gridlock pre-venting new climate laws is just fine. The National Association of Manufacturersexpressed its “great concerns” over what policies will have to be put in place by theUnited States to honor the Paris agreement. The U.S. Chamber of Commerce, abig-business advocate, dismissed the goals set in Paris. “None of the commitmentsmade, including those by the U.S., are binding, and many aren’t even complete,” thegroup said in a statement. “Moreover, Congress must appropriate any funds that theObama administration has pledged.”

Jeff Sommer [NYTimes] “Cheap Gas Is a Thrill, but a Costly One.” The New York Times, Decem-ber 2015.

To cut back on gasoline consumption, after all, the Obama administration has beencounting on higher fuel economy standards, which are likely to be more palatablewhen fuel costs are high. One way of increasing the prices paid by consumers at thepump is to tax carbon emissions or, alternatively, to raise the tax on gasoline. Thesemethods don’t reward companies that extract and refine fossil fuel. Many economistsfavor such taxes. But a carbon tax, which the Obama administration has advocatedbut Congress has opposed, has failed to gain traction in the United States. And thismonth, Congress decided to hold the federal gasoline tax at 18.4 cents, the level atwhich it has been stuck since 1993. Still, as I pointed out in a column a year ago, a

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gasoline tax could be useful not only as an environmental measure but in rebuildingthe nation’s roads and bridges.

5.9 Case Studies

5.9.1 Canada

British Columbia’s carbon tax has been a startling success.

Richard Lipsey [professor emeritus of e5rfconomics at Simon Fraser University], “Theshocking truth about B.C.’s carbon tax: it works,” The Globe and Mail, July 9, 2014,http://www.theglobeandmail.com/globe-debate/the-insidious-truth-about-bcs-carbon-tax-it-works/article19512237/

When Mark Twain wrote, “Never let the facts stand in the way of a good story,” hecould have been describing Canada’s current climate policy debate. Prime MinisterStephen Harper repeatedly claims that a carbon tax would “destroy jobs and growth.”Yet the evidence from the province that actually passed such a tax – British Columbia– tells a different story. The latest numbers from Statistics Canada show that B.C.’spolicy has been a real environmental and economic success after six years. Far from abeing a “job killer,” it is a world-leading example of how to tackle one of the greatestglobal challenges of our time: building an economy that will prosper in a carbon-constrained world. B.C.’s tax, implemented in 2008, covers most types of fuel useand carbon emissions. It started out low ($10 per tonne of carbon dioxide), thenrose gradually to the current $30 per tonne, which works out to about 7 cents perlitre of gas. “Revenue-neutral” by law, the policy requires equivalent cuts to othertaxes. In practice, the province has cut $760-million more in income and other taxesthan needed to offset carbon tax revenue.

BC’s carbon tax has reduced the burning of fossil fuels.

Richard Lipsey [professor emeritus of economics at Simon Fraser University], “The shockingtruth about B.C.’s carbon tax: it works,” The Globe and Mail, July 9, 2014, http://www.theglobeandmail.com/globe-debate/the-insidious-truth-about-bcs-carbon-tax-it-works/article19512237/

At the same time, it’s been extraordinarily effective in tackling the root cause of car-bon pollution: the burning of fossil fuels. Since the tax came in, fuel use in B.C. hasdropped by 16 per cent; in the rest of Canada, it’s risen by 3 per cent (counting all fu-els covered by the tax). To put that accomplishment in perspective, Canada’s Kyoto

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target was a 6-per-cent reduction in 20 years. And the evidence points to the car-bon tax as the major driver of these B.C. gains. Further, while some had predictedthat the tax shift would hurt the province’s economy, in fact, B.C.’s GDP has slightlyoutperformed the rest of Canada’s since 2008. With these impressive results, B.C.’scarbon tax has gained widespread global praise as a model for the world – from or-ganizations such as the OECD, the World Bank and The Economist. But in the restof Canada, it is less heralded, which is a shame. Because when you look beyond thepolitical rhetoric and examine the facts, B.C.’s experience offers powerful, positivelessons for Canada.

The BC carbon tax generated a decrease in demand for gasoline.

Nicholas Rivers [Graduate School of Public and International Affairs, University of Ottawa] andBrandon Schaufele [Department of Economics, University of Ottawa], Working Paper, Depart-ment of Economics, University of Ottawa, August 2012.

Our main result is that the BC carbon tax generated demand response that is 4.9times larger than is attributable to an equivalent change in the carbon tax-exclusiveprice. In our preferred model, a five cent increase in the market price of gasolineyields a 2.2% reduction in the number of litres of gasoline consumed in the sh ort-run, while a five cent increase in the carbon tax, a level approximately equal to acarbon price of $25 per tonne, generates a 10.6% short-run reduction in gasoline de-mand. These resu lts lead us to claim that the carbon tax is more salient than market-determined price changes: carbon taxes produce larger demand responses than tax-exclusive price increases. Due to the robustness and consistency of our estimatesacross a range of specifications includin g models that incorporate intuitively appeal-ing and strong instrumental variables, we feel that our results can be interpreted ascausal. We believe that it was BC’s carbon tax that caused the decline in provincialgasoline demand. We also use our econometric results to construct count erfactualscenarios in order to calculate the change in gasoline-related emissions stemmingfrom the carbon tax. We find that the BC policy reduced carbon dioxide emissionsby more than 3 mil lion tonnes. Of this total, 79.1%, or 2.4 million tonnes, is dueto the additional saliency o f the carbon tax – i.e., it is an environmental bonus thatwould not have been achieved if individu als responded to carbon taxes in the sameway as to identical changes in gasoline prices caus ed by other factors.

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5.9.2 Denmark

The U.S. should follow Denmark’s example in implementing an effective carbon tax.

Monica Prasad, [Assistant Professor of Sociology and a faculty fellow at the Institute for Policy Re-search at Northwestern University], “On Carbon, Tax and Don’t Spend,” New York Times, March25, 2008.

The one country in which carbon taxes have led to a large decrease in emissions isDenmark, whose per capita carbon dioxide emissions were nearly 15 percent lowerin 2005 than in 1990. And Denmark accomplished this while posting a remarkablystrong economic record and without relying on nuclear power. What did Denmarkdo right? There are many elements to its success, but taken together, the insightthey provide is that if reducing emissions is the goal, then a carbon tax is a tax youwant to impose but never collect. This is a hard lesson to learn. The very thoughtof new tax revenue has a way of changing the priorities of the most hard-headedpoliticians — even Genghis Khan learned to be peaceful, the story goes, when hesaw how much more rewarding it was to tax peasants than to kill them. But if wewant lower emissions, the goal of a carbon tax is to prompt producers to changetheir behavior, not to allow them to continue polluting while handing over cash tothe government.

The tax must be combined with investment in clean energy industries.

Monica Prasad, [American Enterprise Institute], “On Carbon, Tax and Don’t Spend,” New YorkTimes, March 25, 2008.

The second lesson is that the carbon tax worked in Denmark because it was easyfor Danish firms to switch to cleaner fuels. Danish policy makers made huge in-vestments in renewable energy and subsidized environmental innovation. Denmarkback then was more reliant on coal than the other three countries were (but not moreso than the United States is today), so when the tax gave companies a reason to leavecoal and the investments in renewable energy gave them an easy way to do so, theyswitched. The key was providing easy substitutes. The next president of the UnitedStates seems sure to be more committed to environmental policy than the currentpresident is, and a carbon tax is high on everyone’s list of options. Indeed, a carbontax has been promoted almost as a panacea — just pop in the economic incentivesand watch them work their magic. But unless steps are taken to lock the tax revenueaway from policymakers and invest in substitutes, a carbon tax could lead to more

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revenue rather than to less pollution. An increase in gasoline taxes — the first instinctof many American policy makers when the idea of a carbon tax comes up — wouldlikewise be the wrong policy for the United States. Higher gas taxes would raise rev-enue but do little to curb pollution. Instead, if we want to reduce carbon emissions,then we should follow Denmark’s example: tax the industrial emission of carbonand return the revenue to industry through subsidies for research and investment inalternative energy sources, cleaner-burning fuel, carbon-capture technologies andother environmental innovations.

5.10 Vs. other policies

5.10.1 Compared to misc. regulations

Greg Ip [Wall Street Journal] “The Narrow Path to a Carbon Tax.” The Wall Street Journal, De-cember 2015.

These are expensive ways to combat climate change. Mandated energy efficiencylimits consumer choice and makes cars and appliances more expensive. Plunginggasoline prices have sent consumers flocking to less efficient light trucks, and automakers are pressing to relax the fuel-efficiency standards when they come up forreview in 2017. Subsidies create industries addicted to taxpayer support. Regulationsalso provide less certainty than legislation: two dozen states are suing to overturn theClean Power Plan.

Jerry Taylor [Niskanen Center] “The Conservative Case for a Carbon Tax.” The Niskanen Center,March 2015.

The alternative to a carbon tax is not a policy of ignoring climate risks. The alterna-tive to a carbon tax is a plethora of command-and-control regulatory interventionsat every level of government and subsidies for low-carbon technologies and practices.Those interventions already impose a sort of carbon tax. Regulatory costs increasethe price we pay for energy-related goods and services. But unlike a carbon tax, theincreased costs are invisible to consumers. The carbon tax delivered by command-and-control regulation is uneven, invisible, inefficient, and economically incoherent.EPA’s proposed regulations for new coal-fired power plants (under section 111(b) ofthe Clean Air Act7 ) dictate carbon capture and storage technology that reduces CO2

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emissions at a cost of $88-$131 per ton.8 The agency’s proposal for regulating exist-ing power plants (“The Clean Power Plan,” issued under section 111(d) of the CleanAir Act) leaves the details up to the states, so it is unclear exactly what regulatoryinitiatives will follow.9

5.10.2 Compared to Cap and Trade

Jonathan Ramseur and Larry Parker [Federation of American Scientists] “Carbon Tax and Green-house Gas control: Options and Considerations for Congress” Congressional Research Service,March 2009.

Depending on the chosen GHG control instrument—carbon tax or cap-and-trade—either emissions or prices would fluctuate over short-term time periods (months toyears). Proponents of a carbon tax often highlight the volatile price swings that havebeen observed in the U.S. sulfur dioxide (SO2) emissions cap-and-trade program.46Between 2001 and 2006, the price of a SO2 allowance has varied by a factor of 12.47The inclusion and substantial use of banking has not been sufficient to overcomeother factors creating price volatility, such as uncertainty regarding proposed regu-latory changes in the program (e.g., The Clean Air Interstate Rule).

Robert Stavins [Harvard] “The Conservative Case for a Carbon Tax.” The Niskanen Center, March2015.

In contrast to command-and-control regulations, market-based instruments havethe potential to provide powerful incentives for companies to adopt cheaper and bet-ter pollution-control technologies. This is because with market-based instruments,particularly emission taxes, it always pays firms to clean up a bit more if a sufficientlylow-cost method (technology or process) of doing so can be identified and adopted.


Putting a price on pollution creates opportunities for a wide range of types of innova-tion. This gives taxation an advantage over more prescriptive environmental policyinstruments which tend to encourage a focus on end-of-pipe innovations (i.e. inno-vations reducing the emission of pollution but not the creation of it). A typical exam-ple is a ‘scrubber,’ a device put on the end of a smokestack to limit emissions. Suchinnovations are important, but are often less efficient than measures which reducethe pollution in the first place. The wide range of actions that can be induced by tax-

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ation encourages a more equal mix between cleaner production process innovationand end-of-pipe abatement measures.

Jonathan Ramseur and Larry Parker [Federation of American Scientists] “Carbon Tax and Green-house Gas control: Options and Considerations for Congress” Congressional Research Service,March 2009.

A carbon tax has several potential advantages. With a fixed price ceiling on emis-sions (or their inputs—e.g., fossil fuels), a tax approach would not cause additionalvolatility in energy prices. A set price would provide industry with better informa-tion to guide investment decisions: e.g., efficiency improvements, equipment up-grades. Economists often highlight a relative economic efficiency advantage of acarbon tax, but this potential advantage rests on assumptions—about the expectedcosts and benefits of climate change mitigation—that are uncertain and controversial.Some contend that a carbon tax may provide implementation advantages: greatertransparency, reduced administrative burden, and relative ease of modification.

Stepp and Atkinson [ITIF] “An Innovation Carbon Price: Spurring Clean Energy Innovationwhile Advancing U.S. Competitiveness.” Information Technology and Innovation Foundation,March 2011.

The United States faces two key energy challenges — improving national security byreducing dependence on foreign oil and mitigating the impacts of climate change byreducing carbon emissions. Closely linked is another challenge – as well as an oppor-tunity – boosting international economic competitiveness by discovering and widelycommercializing clean energy technologies. Until now, the predominant approachto these challenges was to raise the cost of carbon, either with a tax or through capand trade. But this approach has come under strong resistance in part because raisingthe price of energy hurts U.S. industrial competitiveness. This was one reason for thefailure of cap and trade. However, we believe that it is possible to structure a policyapproach that meets all three goals simultaneously — reducing oil consumption andcarbon emissions and spur clean energy innovation while at the same time boost-ing U.S. industrial competitiveness. The way to do that is through a revenue-neutralinnovation carbon price policy. ITIF proposes a fifteen year economy-wide carbontax of $15 per ton with 80 percent of tax revenues recycled back into the economyas growth and innovation inducing business tax incentives. Businesses that investin the building blocks of innovation and growth — R&D, workforce training, andcapital equipment — would receive a much more generous tax incentive than they

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currently receive. The remaining revenue would fund a Clean Energy InnovationTrust Fund that would support clean energy innovation initiatives. We believe thatwith this proposal we can have our proverbial cake and eat it too: cut oil imports,reduce carbon emissions, boost U.S. competitiveness and economic growth, expandfederal revenues from that growth, and spur the expansion of a domestic clean en-ergy industry.

Robert Stavins [Harvard] “The Conservative Case for a Carbon Tax.” The Niskanen Center, March2015.

Conventional approaches to regulating the environment are often referred to as“command-and-control” regulations, since they allow relatively little flexibilityin the means of achieving goals. Such regulations tend to force firms to take onsimilar shares of the pollution-control burden, regardless of the cost. Command-and-control regulations do this by setting uniform standards for firms, the mostprevalent of which are technology-based and performance-based standards.Technology-based standards specify the method, and sometimes the actual equip-ment, that firms must use to comply with a particular regulation. A performancestandard sets a uniform control target for firms, while allowing some latitude in howthis target is met. Holding all firms to the same target can be expensive and, in somecircumstances, counterproductive. While standards may effectively limit emissionsof pollutants, they typically exact relatively high costs in the process, by forcingsome firms to resort to unduly expensive means of controlling pollution. Becausethe costs of controlling emissions may vary greatly among firms, and even amongsources within the same firm, the appropriate technology in one situation may notbe appropriate (costeffective) in another. Thus, control costs can vary enormouslydue to a firm’s production design, physical configuration, age of its assets, or otherfactors. One survey of eight empirical studies of air pollution control found thatthe ratio of actual, aggregate costs of the conventional, commandand-controlapproach to the aggregate costs of least-cost benchmarks ranged from 1.07 forsulfate emissions in the Los Angeles area to 22.0 for hydrocarbon emissions at alldomestic DuPont plants.

5.10.3 Carbon tax is easier than cap and trade

Cap and trade is less politically tenable, harder to implement

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New York Times Editorial Board, “The Case for a Carbon Tax,” New York Times, June 6, 2015,http://www.nytimes.com/2015/06/07/opinion/the-case-for-a-carbon-tax.html?_r=0

A carbon tax would also be much easier to administer than some of the other climatechange policies that many leaders, including President Obama and Gov. Jerry Brownof California, have backed. One of those policies is cap-and-trade, an approach thatlimits overall emissions and allows businesses to buy and sell permits that entitlethem to emit carbon dioxide and other greenhouse gases. The United States usedcap-and-trade successfully in the 1990s to reduce the pollution that causes acid rain.But a European Union trading system for greenhouse gas emissions has not been aseffective. Even energy companies like Exxon Mobil that did not sign the letter havepreviously said they can support a carbon tax if lawmakers cut other taxes by an equalamount. In addition, oil companies in Alberta, the home of Canada’s tar sands, haveendorsed a carbon tax. Exxon Mobil and other large energy companies potentiallystand to benefit from a carbon tax, because a tax on emissions would force manyelectric utilities to use more natural gas, which those businesses produce.

Debates over cap and trade have failed before

Warwick J. McKibbin et al [Australian national University, the Brookings Institution], “The Po-tential Role of a Carbon Tax in U.S. Fiscal Reform,” Climate and Energy Economics DiscussionPaper, July 24, 2012.

Either a carbon pollution tax or a cap - and - trade system can “ price carbon . ”1 Of the two approaches, a tax may have the better prospects in the United Statessince Congress ional deba tes over cap - and - trade collapsed in 2010 . One optionfor pricing carbon in the United States would embed a carbon pollution tax withina broader tax reform or budget deficit reduction package . Such an approach coulduse the revenue from the carbon tax to improve the economic efficiency of the taxsystem and/or reduce the federal budget deficit, while also reducing the need forcostlier regulatory measures to reduce climate - disrupting greenhouse gases. 2 Acarbon tax might also allow reductions in subsidies for cle an energy technologiessince a price on carbon alone can make low - carbon technologies more competitivewith their conventional alternatives.

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6.1 AT: Emissions decline

6.1.1 Unilateral regulation will not work

Other polluters sustain pollution

Libecap, G. C. [research fellow at the Hoover Institution as well as the Bren Professor of CorporateEnvironmental Policy, Donald R. Bren School of Environmental Science and Management and aneconomics professor at the University of California, Santa Barbara] (2015). The Misguided Rushto Climate Change Action. Hoover Institution. Text. http://www.hoover.org/research/climate-change-busybodies. Accessed 5 January 2016

When internal costs are small, then country leadership is sustainable because little isat stake for most citizens. This is not how climate change regulation is likely to unfold,however. Because it will be costly, particularly to large numbers of lower and mid-dle class populations and any benefits will be spread throughout the world, countryleadership is not apt to persist until there is more conclusive evidence of offsettingdirect country benefits. Those advocating strong unilateral action in California, inthe U.S., in the E.U. and elsewhere have not been forthcoming in admitting to theirgeneral populations that there is no empirical evidence that leadership will work tothwart the underlying incentive of other countries to free ride. Countries and theircitizens may bear very high costs of actions that primarily benefit others. Altruismis unlikely to be a sustainable political strategy for any serious country politician.

Trade sustains pollution

Peters, G. P., Minx, J. C., Weber, C. L., & Edenhofer, O. (2011) [Author affiliations in order: Cen-ter for International Climate and Environmental Research–Oslo, N-0318 Oslo, Norway; Depart-ment for Sustainable Engineering, and Department for the Economics of Climate Change, Techni-cal University Berlin, 10623 Berlin, Germany; Science and Technology Policy Institute, Washing-ton, DC 20010; Civil and Environmental Engineering, Carnegie Mellon University, Pittsburgh,

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PA 15213; and Potsdam Institute for Climate Impact Research, D-14412 Potsdam, Germany.]Growth in emission transfers via international trade from 1990 to 2008. Proceedings of the Na-tional Academy of Sciences, 108(21), 8903–8908. doi:10.1073/pnas.1006388108

Despite the emergence of regional climate policies, growth in global CO2 emissionshas remained strong. From 1990 to 2008 CO2 emissions in developed countries(defined as countries with emission-reduction commitments in the Kyoto Protocol,Annex B) have stabilized, but emissions in developing countries (non-Annex B)have doubled. Some studies suggest that the stabilization of emissions in developedcountries was partially because of growing imports from developing countries. Toquantify the growth in emission transfers via international trade, we developeda trade-linked global database for CO2 emissions covering 113 countries and57 economic sectors from 1990 to 2008. We find that the emissions from theproduction of traded goods and services have increased from 4.3 Gt CO2 in 1990(20% of global emissions) to 7.8 Gt CO2 in 2008 (26%). Most developed countrieshave increased their consumption-based emissions faster than their territorialemissions, and non–energy-intensive manufacturing had a key role in the emissiontransfers. The net emission transfers via international trade from developing todeveloped countries increased from 0.4 Gt CO2in 1990 to 1.6 Gt CO2 in 2008,which exceeds the Kyoto Protocol emission reductions. Our results indicate thatinternational trade is a significant factor in explaining the change in emissions inmany countries, from both a production and consumption perspective. We suggestthat countries monitor emission transfers via international trade, in addition toterritorial emissions, to ensure progress toward stabilization of global greenhousegas emissions.

A unilateral carbon tax will have no effect on global emissions.

Kenneth P. Green, [Scholar, American Enterprise Institute], “Why a carbon tax is still a bad idea,”August 28, 2012, American Enterprise Institute.

Taxing carbon gets you virtually no climate or health benefit unless it exists withinsome binding, international carbon control regime, which is unlikely to occur – eventhe author of the NYT article acknowledges this. China and India will dominateglobal carbon emissions for the next century, while emissions in the U.S. and de-veloped world are already level or in brisk decline. And, global negotiations overcarbon controls have become an utter farce in which developing countries go fishingfor wealth and intellectual property transfers, while developed countries mouth plat-

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itudes and make promises they have little intention of keeping. Even if one assumesthat rising levels of carbon dioxide in the atmosphere lead to higher global temper-atures, a carbon tax in the United States that reduces emissions domestically wouldhave zero direct effect on foreign emissions if we acted alone. In fact, unilateral ac-tion by the U.S. would have very little effect on total global emissions.

A unilateral carbon tax would actually increase emissions through carbon leakage.

Derrick Morgan, [Vice President for Domestic and Economic Policy at the Heritage Foundation],“A Carbon Tax Would Harm U.S. Competitiveness and Low-Income Americans Without Helpingthe Environment,” Heritage Foundation Research Report, 2012.

The EPA analyzed a cap-and-trade proposal and projected global CO2 concentra-tions in a baseline and under legislation, demonstrating the effects graphically.[16](See Chart 1.) The Administrator of the EPA testified on July 7, 2009: “I believe thecentral parts of the [EPA] chart are that U.S. action alone will not impact world CO2levels….”[17] The analysis showed that even if the U.S. adopted stringent carbon capsunder that legislation[18] and the international community did not, global CO2 con-centrations would decrease 25 parts per million (with concentrations equaling 694ppm in 2095). International action, by contrast, would decrease concentrations by202 ppm. Just as in a unilateral U.S. cap-and-trade system, a unilateral U.S. carbontax would likely further increase foreign emissions because of a phenomenon called“carbon leakage.” As energy-intensive industry relocates from the United States toother nations such as Mexico, Vietnam, or China (already the world’s largest emitterof greenhouse gases), GHG emissions and toxic pollutants could increase more thanthey would if those industries remained in the United States.[19]

A carbon tax is unnecessary to prevent global warming; the science that shows the US couldmake a significant dent is too hazy.

Richard W. Rahn, [senior fellow at the Cato Institute and chairman of the Institute for GlobalEconomic Growth], “A Carbon Tax Would Make No Sense,” Washington Times, September 2,2013.

The advocates of a carbon tax claim that the tax will help reduce dangerous emissions.The argument is that carbon dioxide is a “greenhouse” gas and, everything else beingequal, more of it in the atmosphere will result in higher atmospheric temperatures.The operative phrase here is “everything else being equal.” When fossil fuels areburned, they produce small amounts of carbon dioxide but large amounts of water

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vapor. Increases in water vapor show up as more cloud cover. Clouds both trap heat(which increases warming) and reflect sunlight (which reduces warming), but thereis no consensus about which effect is greater. What is known with a high degree ofcertainty is that at times in the past, the Earth has been both warmer and cooler atcurrent levels of carbon dioxide in the atmosphere. What is also known is the currentclimate models have a dreadful record of prediction. Twenty years ago, we were toldthat the Earth’s temperatures would steadily rise from then on, yet there has beenno average warming for the past 16 years — oops. Let’s assume for the moment thatthose who think that global warming is largely caused by increases in carbon diox-ide, and that man has caused the increase, are correct. Those who think that alsohave a “mainstream” forecast of 3 degrees Celsius of global warming between nowand the end of the century. At most, they also estimate that the U.S. contributionwill only be about 0.2 degrees Celsius, or about 7 percent of global warming. Doesit make sense for the United States to impose a carbon tax, when emissions from therest of the world — notably, India and China — would be responsible for 93 percentof the temperature rise? Even with very high taxes on carbon-dioxide emissions, theamount of warming that would be prevented is too small to measure on a 50-yeartime scale.

6.1.2 A carbon tax won’t make any difference.

Kevin Drum, [Staff Writer, Mother Jones], “And now, the Case Against a Carbon Tax,” April 26,2011, Mother Jones, http://www.motherjones.com/kevin-drum/2011/04/and-now-case-against-carbon-tax.

Speaking of carbon taxes, the best argument against them probably has nothing todo with either global warming or tax policy. The best argument is: why bother? Thesimple form of this argument is that world production of oil is near its peak and canincrease only slowly in future years. However, demand is going to stay high, espe-cially in developing countries, and this is going to cause the price of oil to skyrocket.Or, more likely, to yo-yo up and down as oil-induced recessions give way to eco-nomic growth, which in turn raise oil prices and cause another recession, rinse andrepeat. If that by itself isn’t enough to spur lots of research into alternative energysources, then a carbon tax isn’t likely to make much of a difference.

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6.1.3 A carbon tax can’t mitigate global climate change.

Chip Knappenberger, [Assistant Director of the Center for the Study of Science at the Cato In-stitute], “A U.S. Carbon Tax Wouldn’t Slow Down Global Climate Change,” US News and WorldReport, December 10, 2012.

A carbon tax will not achieve the goal of substantially mitigating global climatechange. There is one, and only one, reason for instituting a carbon tax: to attempt tomitigate the impacts of climate change induced by humankind’s use of fossil fuels forthe production of energy. And about the only thing that a carbon tax in the UnitedStates will not do is mitigate global climate change in any meaningful—scientifically,or otherwise—manner. Why? Because, based on mainstream estimates, of theapproximately 3°C of global warming that is being projected to occur between nowand the end of the century as a result of anthropogenic carbon (dioxide) emissions,the U.S. contribution will only be about 0.2°C, or about 7 percent of the totalwarming. And this is assuming that no carbon tax is put in place. Carbon dioxideemissions from the rest of the world—primarily driven by rapid emissions growthin developing countries like China and India—will be responsible for the other 93percent of temperature rise.

6.1.4 Emissions reductions will be too slow.

Chip Knappenberger, [Assistant Director of the Center for the Study of Science at the Cato In-stitute], “A U.S. Carbon Tax Wouldn’t Slow Down Global Climate Change,” US News and WorldReport, December 10, 2012.

The best that any carbon tax in the United States could ever hope to achieve wouldbe to reduce the amount of global warming across the 21st century from about 3.0°Cdown to about 2.8°C. And that tiny, inconsequential reduction would only occurif all greenhouse gas emissions from the United States were halted forever, startingtomorrow, which isn’t the plan. The emissions reductions under any sort of carbontax will be realized slowly, reducing the magnitude of the global temperature risethat the tax would avert. For example, a carbon tax designed to smoothly reduce ourgreenhouse gas emissions from their current level to zero by the year 2100 wouldresult in only about 0.1°C of global temperature “savings”—an amount, on its own,not worth pursuing.

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6.1.5 A carbon tax would not have a significant impact on world temperature.

David W. Kreutzer, [Ph.D., Senior Research Fellow, Energy Economics and Climate Change, Her-itage Foundation], “Impacts of Carbon Taxes on the US Economy,” Legislative Testimony beforeCommittee on Finance, US Senate, September 16, 2014.

Estimates of a carbon tax’s impact on world temperature do not lend much supportfor a carbon tax. Climatologists Pat Michaels and Chip Knappenberger provides anonline calculator to estimate the impact of various cuts in CO2 emissions.[5] Thecalculations are based on the MAGICC model developed at the National Center forAtmospheric Research. The AEO2014 side case for the $25 per ton carbon tax wouldcut energy-related CO2 emissions by about 50 percent by 2050 (overall emissionswould probably drop by a slightly smaller percentage). These cuts translate to a tem-perature moderation of about 0.05 degrees centigrade (about 0.09 degrees Fahren-heit) by the end of this century. Few would argue that this virtually unmeasurableimpact is worth the million lost jobs and trillions of dollars of lost income. Eveneliminating carbon dioxide emissions entirely and assuming the highest sensitivityof world temperature to carbon dioxide levels (which happens to be the sensitivitythat is furthest from that in recent research) would project a temperature moderationof less than 0.2 degree centigrade.[6] Of course, eliminating CO2 emissions entirely,if possible, would have much higher costs than even those of the $25 carbon taxmodeled by the EIA or the Boxer-Sanders tax modeled by Heritage.

6.2 AT: Progressive Tax/Reduce Income Inequality

6.2.1 It’s extremely difficult to design a progressive carbon tax

Economics experts repeatedly fail to create a model carbon tax that would be progressive

“Carbon Tax Swap Barely Works, Even In Theory,” Institute for Energy Research. March 2, 2015.http://instituteforenergyresearch.org/analysis/carbon-tax-swap-barely-works-even-in-theory/

A 2013 paper by Donald Marron and Eric Toder was one of the first to explore thisidea [of a carbon tax swap] seriously…Marron and Toder modeled the effects of acarbon tax on five pre-tax income quintiles, unsurprisingly finding that a carbon taxalone was income-regressive. They then layered on top of that a policy distributingall carbon tax proceeds to reduction in corporate income tax rates…A carbon tax

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and a lower corporate income tax, Marron and Toder unsurprisingly find, is moreregressive than a carbon tax alone. But then, if just one-quarter of the carbon taxproceeds are distributed in a lump-sum household rebate, the burden is shifted tothose in the middle three quintiles, with the highest quintiles best off and the lowestat least better off. Marron and Toder close by noting how hard it is to design the“perfect tax swap,” one that is progressive, reduces the distortions caused by highstatutory U.S. corporate income tax rates, and taxes carbon. [Ellipses in original]

6.2.2 Redistribution may be the reason why income inequality is harmful

Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides [Economic Researchers at theIMF], “Redistribution, Inequality, and Growth,” International Monetary Fund

That equality seems to drive higher and more sustainable growth does not, in itself,support efforts to redistribute. In particular, inequality may impede growth at least inpart because it calls forth efforts to redistribute through the fiscal system, efforts thatthemselves may undermine growth. In such a situation, even if inequality is bad forgrowth, taxes and transfers may be precisely the wrong remedy. While the literatureon this score remains controversial, the notion of a tradeoff between redistributionand growth seems deeply embedded in policymakers’ consciousness. The negativeeffect of redistributive policies is indeed the central theme of Arthur Okun’s famous1975 book on the tradeoffs between efficiency and equity and on the efficiency “leaks”that efforts to reduce inequality engender.

6.2.3 Study on Carbon Tax denies this empirically

This study argues (in somewhat convoluted fashion) that the carbon taxwill not lead to utilitiescompanies switching to renewables because, among other effects, the tax will reduce energydemand, making investing to switch to renewables more expensive than paying the tax

Gürhan Kök, Kevin Shang, Şafak Yücel [In order: Academic Director of Koc University-Migros Retail Research Center, Associate Professor of Operations Management at theFuqua School of Business at Duke University, Ph.D Candidate at the Fuqua School ofBusiness at Duke University], “Impact of Electricity Pricing Policies on Renewable EnergyInvestments and Carbon Emissions,” Social Science Research Network, August 27, 2015.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2525940

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Also, due to the increased cost, the utility firm charges a higher price, which, in turndecreases the demand. Thus, the need for the renewable source decreases if the taxlevel is sufficiently high. Similar observations are made in the literature for spendingin pollution abatement technologies by Farzin and Kort (2000) and Baker and Shittu(2006).

The study’s conclusion is that the carbon tax “may not produce the desired outcomes.”

Gürhan Kök, Kevin Shang, Şafak Yücel [In order: Academic Director of Koc University-Migros Retail Research Center, Associate Professor of Operations Management at theFuqua School of Business at Duke University, Ph.D Candidate at the Fuqua School ofBusiness at Duke University], “Impact of Electricity Pricing Policies on Renewable EnergyInvestments and Carbon Emissions,” Social Science Research Network, August 27, 2015.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2525940

This paper has significant policy implications. Policy makers and academics havebeen arguing in favor of the peak pricing policy (or more granular policies suchas real-time pricing) as a means to smooth out electricity demand throughout theday. Some experts have further argued that peak pricing may also lead to an in-crease in renewable energy investments under certain cases. This paper shows thatthe peak pricing policy may not produce the desired increase in renewable 31 en-ergy investments. In particular, we show that flat pricing leads to a higher renewableenergy investment, lower emissions and a higher consumer surplus if the investorsare traditional utility firms. This is particularly relevant in the U.S. where the energyinvestments are mainly undertaken by utility firms. The impact of pricing policieson renewable energy investments requires a careful consideration of three factorstogether: (i) the electricity generation pattern of the renewable sources, (ii) the de-mand pattern throughout the day, and (iii) the investor in energy sources (utilityfirms or DGs). In addition, policies such as carbon tax and cash grants for renew-able investments may not produce the desired outcomes either: our results suggestthat a high level of carbon tax may reduce renewable energy investments, and cashgrants to renewable sources may increase carbon emissions.

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6.3 AT: EconomicTheory Recommends the Carbon Tax

6.3.1 Even if a carbon tax works in theory, it does not in practice

Carbon tax effectiveness requires the American government to know polluters’ cost curves,which it does not. There is no way to know what to set the rate at. Carbon tax may work intheory, but it


A carbon tax, however, does not provide emissions certainty. Firms will reduce, orabate, their emissions up to the point where it is cheaper to pay the tax than to reduceemissions further. However, firms’ abatement cost curves are not well known andwill depend on characteristics specific to firms, including their fuel mix and theiravailable abatement opportunities. As such, it is difficult for policy makers to knowthe level of reductions that will be achieved by a carbon tax. In addition, changes inconditions external to firms, such as fuel prices, weather patterns, and the develop-ment of new low-cost abatement technologies are unpredictable. It is also unclearhow the overall economy will adjust to higher prices of energy and energy-intensivegoods, which will feed back into the markets in which these firms operate. For allthese reasons, the total amount of emissions abatement that will result from a par-ticular carbon tax rate is uncertain at the time the tax is set. Achieving a long-runemission target may require periodic adjustments in the tax rate. As most proposalsassume that the tax rate increases at a fixed but gradual rate over time, this wouldlikely imply that changes would need to be made to the rate of growth—either in-creasing or decreasing how fast the tax increases over time. The extent to which taxrates may have to be adjusted would reduce the amount of compliance cost certaintya carbon tax could otherwise provide—detracting somewhat from one of the princi-pal arguments in favor of a tax—compliance cost certainty.

Calculating the social cost of pollution is nearly impossible. The current estimates don’t eventake climate change into account.


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Economic theory suggests that a carbon tax should be set equal to the social cost ofcarbon, which is the present value of estimated environmental damages over timecaused by an additional ton of CO2 emitted today. Theory also suggests that thetax rate should rise over time with the growth rate of the marginal damages fromemissions. There are many estimates of the social cost of carbon and they vary widely.The Interagency Panel on the Social Cost of Carbon estimates costs from $5 to $65per ton of CO2 (2007 dollars).15 Their central value estimate was $24 per ton ofCO2 in 2015, however they noted that this dollar figure does not completely capturenon-market impacts (like the loss of species), the costs of catastrophic impacts orthe cost of adaptation. Under conventional discounting, and without incorporatingthe risks of catastrophic climate change, most estimates fall between $5 and $20 perton.16 These estimates are highly uncertain because the impacts of climate change,including non-market impacts and catastrophic effects, are very hard to pin down.

6.4 AT Economic Benefits

6.4.1 The carbon tax would introduce a number of perverse effects into the economy.

Leakage + slowed growth makes the tax not worth it

Jonathan L. Ramseur [Congressional Research Service Specialist in Environmental Policy], “Car-bon Tax: Deficit Reduction and Other Considerations,” CRS, April 2, 2013,

Some carbon pricing policies may yield unexpected and unwelcome results. For car-bon taxes, one such “perverse effect” would be the potential to increase the cost ofbusiness activity in the United States. Over time, this could result in reduced revenuefrom both the carbon tax and other taxes. 67 This consideration has led some othercountries to exempt energy-intensive manufacturers in specific or strategic sectorsfrom energy or carbon taxes. 68 In addition, a carbon tax could lead to emissions“leakage,” if businesses moved operations overseas to avoid the tax. This outcomewould depend on a number of factors, however, including relative fuel mixes, effi-ciencies of power production and transportation, border taxes, etc.

Carbon tax undermines critical industries

Mark J. Perry, [professor of economics at the Flint campus of the University of Michigan], “Car-bon tax proposal will hobble our already challenged economy, stall growth,” August 18, 2012,American Enterprise Institute.

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The hardest hit sectors of the U.S. economy from a carbon tax would be energy-intensive industries, particularly chemicals, automobile manufacturing, iron andsteel, aluminum, cement, and mining and oil refining. These large industries wouldbe at a serious disadvantage in the world marketplace, and many companies wouldmove production to countries without such a tax. The cost in dollars, as well as inlost jobs, from a carbon-tax would be staggering. And the cost would ultimatelyfall on American consumers — without necessarily generating any environmentalbenefits if China, India and other countries with fast-growing economies continueto pollute. In theory, the cost of a U.S. carbon tax could be rebated to consumers.But it’s more likely that most of the money would be used to subsidize renewableenergy sources such as solar and wind power. For years now, solar and windcompanies have received taxpayer-subsidized grants and federally guaranteed loansfor plant construction along with requirements forcing utilities to buy back theelectricity they generate at costs far above conventionally-generated electricity.What’s more, the argument for a carbon tax unfairly discounts the hard-won gainsthat U.S. industries already have made in reducing carbon emissions and threatensto hinder further progress. The fact is, the United States has cut its carbon emissionsmore than any other country in the world in recent years — by 9 percent since 2007.Rather than waste our time on what is politically unattainable, why not focus onsome initiatives that already are making a difference?

6.4.2 Various sources show that the carbon tax would undermine the economy at thepersona, household, industrial, and macroeconomic levels

Clifton Parker [Stanford] “Stanford research finds carbon regulation burden heaviest on poor.”Stanford University, February 2014.

The heaviest burden for climate change regulation costs falls on people – especiallylower income groups – and not corporations, according to new Stanford research.The reason is that companies ultimately pass on those costs to people. For the poor,basic necessities take up a bigger chunk of the budget than for the rich. “Householdsin the lowest income group pay, as a percent of income, more than twice what house-holds in the highest 10 percent of the income distribution pay,” wrote economistCharles Kolstad, a senior fellow at the Stanford Institute for Economic Policy Re-search and the Precourt Institute for Energy.

Dr. Alex Robson [Griffith University] “Australia’s Carbon Tax: An Economic Evaluation.” Griffith

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University, September 2013.

As Williams (2011) explains, this increase in marginal rates was needed as part of thecompensation package because of the revenue cost of the Government’s decision toincrease the tax free threshold, which reduced marginal rates for some low incomeearners. To claw back some of the foregone revenue, marginal rates for those onhigher incomes had to be increased. Under the carbon tax policy, marginal incomerates were increased for those already facing reasonably high tax rates. Since the ef-ficiency costs of taxation increase with the square of the tax rate, these changes arelikely to have led to significant overall efficiency costs, even taking into account thefact that marginal rates were reduced for some taxpayers. The crucial point is thatthat this increase in effective marginal tax rates is the exact opposite of what the dou-ble dividend theory recommends. In other words, instead of using the tax system tooffset some of the negative welfare effects caused by the interaction between the car-bon tax and the personal income tax system, the most likely effect of the AustralianGovernment’s income tax changes is that they have actually made things worse andexacerbated the negative effects of those interactions. Moreover, none of these addi-tional costs were taken into account in the Government’s modelling of the effects ofthe tax.

Lawrence Goulder [Stanford] “Carbon Tax Design and U.S. Industry Performance.” Tax Policyand the Economy: UChicago Journals, 1992.

The carbon tax implies a reduction in profits in all industries except in the gas utili-ties industry, which provides a substitute for electric utilities. (Even the gas utilitiesindustry suffers a loss of profits after 2010.) The percentage reductions in profits dif-fer significantly across industries. Fossil fuel producers generally suf fer the largestlosses. Interestingly, the effects on profits are minor in the oil and gas industry; weaddress this issue in subsection C. There are significant reductions in profits in thepetroleum refining and electric utilities industries, which make intensive use of fos-sil fuels. The long run reductions in profits are small in the gas utilities industryand the nonenergy industries, which depend relatively little on fossil fuels. In gen-eral, changes in investment correspond to anticipated changes in profits. By far thelargest reductions in investment occur in the coal mining industry, where investmentdeclines by about 26 percent initially and by 39 percent in 2020.

Australian Government Report “REPEAL OF THE CARBON TAX – IMPACTS ON HOUSE-HOLDS AND BUSINESSES.” Department of the Environment-Australia, 2012.

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Approximately 75,000 businesses directly paid the carbon tax or paid an equivalentcarbon tax through changes to duties and rebates, such as an increase in aviation fuelduty. Companies that were subject to the carbon tax typically will have passed onpart or all of this cost to their customers, smaller businesses and households, whichexperienced higher prices as a result of the tax. The introduction of the carbon taxfrom 1 July 2012 (at $23 per tonne in 2012-13) was estimated by the Treasury to haveincreased the cost of living of households by around $9.90 per week on average, andincreased the Consumer Price Index by 0.7 per cent.

Dr. Alex Robson [Griffith University] “Australia’s Carbon Tax: An Economic Evaluation.” GriffithUniversity, September 2013.

It is also possible to use the Government’s modelling results to estimate the marginaland average GDP cost per tonne of abatement. For example, under the carbon tax,Australia is projected to achieve a cumulative reduction (inclusive of the purchase ofoverseas permits, relative to business as usual) of 681Mt CO2-e. But the cumulativeGDP cost to 2020 of achieving this abatement, relative to business as usual, is $33billion in 2010 dollars. In other words, between 2013 and 2020 there is an averageGDP loss of $48 dollars for each tonne of abatement (more than half of which issourced from overseas), with costs as high as $142 per tonne in 2013. In other words,the economic cost of the carbon tax in terms of lost GDP per tonne far exceeds theheadline carbon price.


In all the cases considered, the carbon tax causes GNP to fall. The GNP falls byconsiderably more under the destination-based carbon taxes than under the origin-based tax. This is in keeping with the fact that the United States is a net importer ofemissions: There are more emissions associated with its consumption than with itsproduction. The destination-based tax applies to emissions consumption, the origin-based tax to production. The destination-based tax therefore has a larger base, whichcontributes to the larger GNP impact. When carbon tax revenues are used to reduceother distortionary taxes, the GNP effects are still negative, but smaller in absolutevalue than under the lump-sum tax case. In all simulations, the percentage losses ofGNP are greater in the long run than in the short run. This is in keeping with thegradual shift of the economy away from oil and gas and toward coal and synfuels,which are more carbon-intensive and yield a larger tax base.

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Laurent Belsie [NBER] “How Regressive is a Price on Carbon?” National Bureau of EconomicResearch.

Under either a cap-and-trade program that limits carbon emissions or a carbon taxthat imposes an outright tax on these emissions, the poor may be among the hard-est hit. Because they spend a greater share of their income on energy than higher-income families, households in the lowest fifth of the income distribution couldshoulder a relative burden that is 1.4 to 4 times higher than that of households inthe top fifth of the income distribution, according to a study by Corbett Graingerand Charles Kolstad. In Who Pays a Price on Carbon? (NBER Working Paper No.15239), they show that the burden on the poorest households doubles when a priceon carbon is targeted narrowly on energy consumption (and not other energy uses)rather than broadly across all industries. “Our results suggest that the burden as apercent of annual income is much higher among lower income groups than higherincome groups,” the authors write.


Part of the reduction in real wages relative to baseline (see Figure 5.5) brought aboutby the carbon tax occurs as a result of a more rapid increase in consumer prices thanwould otherwise be the case. The main direct effect on consumer prices has beenthrough electricity prices, as well as natural gas prices. These price increases are ex-pected to continue over time as the carbon tax rises. Indeed, the Government’s mod-elling suggests that by 2050 the carbon tax will cause inflation adjusted wholesaleelectricity prices to be double what they otherwise would be (see Table 5.2). This isexpected to lead to an increase in retail electricity prices of around 32 per cent abovebusiness-as-usual levels by 2050.35 The Australian Government stated that the car-bon tax would lead to “an average increase in household electricity prices of 10 percent over the first five years of the scheme.” In most jurisdictions in Australia, retailelectricity prices are subject to direct regulation. A number of estimates have indi-cated that the initial effect of the tax on electricity prices have already achieved the10 per cent increase. The July 2012 release of the TD Securities Melbourne InstituteMonthly Inflation Gauge stated that “due to the introduction of the carbon tax from1 July, the price of electricity rose by 14.9 per cent.”36 As Figure 5.7 below shows, theincrease in household electricity prices after the carbon tax was introduced was thehighest quarterly increase on record.

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6.5 AT: Case Studies

6.5.1 AT Australia

Australia’s carbon tax policies mean lower productiveness and competitiveness.

Alan Moran [Institute of Public Affairs], “The Case Against the Carbon Tax,” Australian FinancialReview, 8 September 2011.

Inauspiciously, this week US solar power industry poster child Solyndra wentbankrupt, shedding 1000 jobs. Even though it received $US535 million in low-interest government loans - half a million dollars per job - this was insufficientto tilt the playing field in its favour. Australia’s experiences with subsidies forturbine blade facilities in Victoria have similarly failed. Subsidies and taxes canforce production into high-cost and more labour-intensive directions but evenwhen they do, this doesn’t bring net job creation. If it did, we would benefit fromtaxes to replace tractors on farms with hand ploughing. That would require atenfold increase in employment but would simultaneously lower productivity bynine-tenths. Unfortunately, the job increases would be offset by job losses. Netjob creation from discriminatory taxes or subsidies is only possible with reducedliving standards. Electricity from wind in Australia costs three times as much asfrom coal or gas. Forcing the adoption of wind farms for electricity supply can nomore increase jobs than if we required labour-intensive, pedal-powered turbines forgenerating electricity. As a recent Productivity Commission report demonstrated,Australia is no slouch when it comes to wasting money and raising costs in itsenergy policy. The commission showed that Australian spending on greenhousegas abatement, while not reaching the giddy heights of the EU, was higher thanin China, the US, Japan and South Korea. And our industries carry a far greaterburden than those in rival primary product-exporting countries. The commissionestimated the cost of Australian emission-reduction programs at $473 million to$694 million in terms of total subsidy equivalent. The largest component of this, the20 per cent renewable energy requirement, is still gearing up and will cost $4 billiona year by 2020. Moreover, the commission estimates exclude Australia’s directgovernment subsidies in 93 programs, which cost $1 billion in 2009-10. Australiancarbon abatement taxes and subsidies mean lower competitiveness, exports divertedto rival suppliers and job losses, with no effect on global emissions.

The carbon tax did not reduce emissions significantly in Australia.

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Fredrik NG Andersson and Peter Karpestam, [Department of Economics, Lund University], “TheAustralian Carbon Tax: A Step in the Right Direction but Not Enough,” Carbon Management2012, 3(3).

Empirical results show that policy instrument s such as environmental taxes or trad-able emission permits increases innovation in “green technologies” and sp eeds upthe diffusion process of existing technologies [2-5]. However, even if a carbon taxis a step in the right direction the tax itself is unlik ely to be enough to reduce emission by as much as the IPCC [103] has deemed to be necessary to prevent th e globaltemperature to increase by more than 2 degrees Celsius above the pre-industrial level. Since 1973, the oil price has increased by 350% in real terms, but despite thisprice in crease Australian demand for oil has grown by 50% 3 . Moreover, despiteof a doubling of the real oil price since the late 1990s, the share of patents in eitherrenewable energy sources or emissions abatement and fuel efficiency in transporthas barely risen si nce 1998 and still account for less than 5% of all patents 4 [104] 3Therefore, even if a higher carbon price is likely to reduce demand for fossil fuels it isunlikely that putting a price on carbon is suffi cient to dramatically reduce emissions.

6.5.2 AT British Columbia

The reduction in emissions was only temporary.

Patrick J. Michaels et al, [CATO Institute], “The Case against a Carbon Tax,” CATO WorkingPaper No. 33, September 4, 2015.

Another significant point is that even if not a statistical art ifact, the apparently largereduction in B.C. emissions was only temporary. The studies tru mpeting the potencyof B.C.’s carbon tax went only up through 2012 data. However, o fficially reported B.C.gasoline sales increased sharply in 2013 and 2014, such th at as of 2014, annual percapita B.C. gasoline sales were down only 2 percent compare d to 2007, which wasonly a percentage point lower than the rest of Canada. 56 (See Figure 5.) On thiscriterion it seems B.C.’s carbon tax had a very weak long‐term impact on gasolineconsumption, even if we ignore t he significant “leakage” proble m.

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6.6 AT IPCC

6.6.1 The last IPCC report indicated that aggressive emission cutbacks would causemore harm than good.


Ironically, the latest U.N. Intergovernmental Panel on Climate Change (IPCC) re-port indicated that a popular climate target cannot be justified in cost/benefit terms.Specifically, in the middle-of-the-road scenarios, the economic compliance costs oflimiting global warming to 2 degrees Celsius would likely be higher than the climatechange damages that such a cap would avoid. In other words, the U.N.’s own reportshows that aggressive emission cutbacks — even if achieved through an “efficient”carbon tax — would probably cause more harm than good.

6.6.2 IPCC forecasts are unreliable.


In the policy debate over carbon taxes, a key concept is the “social cost of carbon,”which is defined as the (present value of) future damages caused by emitting an addi-tional ton of carbon dioxide. Estimates of the SCC are already being used to evaluatefederal regulations, and will serve as the basis for any U.S. carbon tax. Yet the com-puter simulations used to generate SCC estimates are largely arbitrary, with plausi-ble adjustments in parameters — such as the discount rate — causing the estimateto shift by at least an order of magnitude. Indeed, MIT economist Robert Pindyckconsiders the whole process so fraught with unwarranted precision that he has calledsuch computer simulations “close to useless” for guiding policy. Future economicdamages from carbon dioxide emissions can only be estimated in conjunction withforecasts of climate change. But recent history shows those forecasts are in flux, withan increasing number of forecasts of less warming appearing in the scientific liter-ature in the last four years. Additionally, we show some rather stark evidence thatthe family of models used by the U.N.’s Intergovernmental Panel on Climate Change(IPCC) are experiencing a profound failure that greatly reduces their forecast utility.

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6.7 AT Revenue

6.7.1 A revenue neutral deal is very unlikely.


The idea of revenue‐neutral “pro ‐growth” carbon tax reform for the U.S. is arguablya red herring, as it is very unl ikely that any national politic ally feasible deal willrespect revenue neutrality. On lower jurisdictions, note that G overnor Jerry Brownwanted to use California’s cap‐and‐trade revenue for high‐speed rail, 27 while thewebsite for the Regional Greenhouse Gas Initiative (RGGI)—which is the cap‐and‐trade program for power plants in participating Northeast and M id‐Atlantic states—proudly explains how its revenues have been spent on renewables , energy efficiencyprojects, and other “green” investments. 28 And far from insisting on revenue neu-trality, Washington State Governor Jay Inslee wants to insta ll a new state‐ levelcap‐and‐trade levy on carbon emissions to fund his $12.2 billion transportation plan.

6.7.2 The tax base will be shifted onto something we are trying to reduce.

Mr. Cass [Senior Fellow at the Manhattan Institute], “Carbon Taxes in Revenue Fantasyland,”Wall Street Journal, 2013, http://www.wsj.com/articles/carbon-taxes-in-revenue-fantasyland-1430436869.

Two problems emerge. First, the tax base will have shifted onto something that we aretrying to reduce. As carbon emissions decline, so too will tax revenues. This dynamicmight seem appealing as a way to “starve the beast” and force cuts in governmentspending, but more likely it will trigger irresistible pressure for tax increases. It is apolicy mistake to leave the government reliant on a diminishing-by-design tax basefor its funding and political folly to program a strong demand for increased revenueinto the tax code.

6.7.3 A carbon tax is not revenue-neutral on its way back down.

Mr. Cass [Senior Fellow at the Manhattan Institute], “Carbon Taxes in Revenue Fantasyland,”Wall Street Journal, 2013, http://www.wsj.com/articles/carbon-taxes-in-revenue-fantasyland-1430436869.

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Moreover, a carbon tax may be revenue-neutral on the way up but it is not onthe way back down. As taxable, carbon-intensive energy sources are replacedby higher-cost/lower-emissions alternatives—arguably the whole point of thepolicy—Americans will continue to pay a price implicitly inflated by the tax eventhough their government no longer receives the revenue from it. As substitute taxescome back online to make up the difference, even if that substitute is simply anever-increasing rate on the remaining carbon emissions, the economy is left to payfor both the higher-cost energy and the full tax burden it already supports today.

6.7.4 The carbon tax will be incredibly inefficient.

Benjamin Zycher, [visiting scholar at AEI], “Letter to the editor: There are issues with a revenue-neutral carbon tax,” April 18, 2013, Wall Street Journal.

The authors may believe that carbon (dioxide) is a “major pollutant,” but nowherein their op-ed do we find a hint about the actual environmental benefits attendantupon the imposition of a carbon tax. The U.N. Intergovernmental Panel on ClimateChange’s best estimate of the temperature effect of a doubling of carbon-dioxide con-centrations by 2100 is three degrees Celsius. U.S. emissions of greenhouse gases areabout 18% of global emissions, so that our contribution would be about 0.5 degrees.If we were to cut that in half—an impossible goal economically—the reduction in U.S.“pollution” would be 0.2-0.3 degrees, the climate effect of which would be unmeasur-able. There is nothing “efficient” about a tax that yields no benefit, and were the taxto be imposed by international agreement (a tax cartel), efficiency would be the leastlikely outcome. Their call for revenue (actually, spending) “neutrality” would notyield greater efficiency because there is no particular reason to believe that carbonemissions are a useful proxy for the benefits of government spending. Messrs. Shultzand Becker have given us an idea truly half-baked, which on the plus side probablyreduced their carbon footprint.

6.7.5 Revenue neutrality is unrealistic.

David W. Kreutzer [Senior Research Fellow, Energy Economics and Climate Change Center forData Analysis], “Carbon Tax Would Raise Unemployment, Not Swap Revenue,” Heritage Foun-dation Issue Brief, 2013.

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Two suggestions to garner more bipartisan support for a carbon tax have been to en-sure that the tax is revenue neutral by reducing other taxes or to replace the EPA’s reg-ulations of greenhouse gas emissions with the CO2 tax. Both proposals are politicalimpossibilities. Just the sniff of a new revenue stream to the tune of hundreds of bil-lions of dollars annually has the special interests in Washington running to Congressfor more handouts. Before carbon tax legislation has even been introduced, ideas onhow to use the revenue already include income transfers, paying for defense spend-ing cuts, reducing the deficit, transferring money to developing countries to adaptto climate change and the list goes on. History shows that any time more moneycomes into the coffers of the federal government, there is a political interest to spendit one way or another.[6] Some proponents of a carbon tax believe that the tax prop-erly prices the externalities that vex opponents of fossil fuels and, therefore, elimi-nates the need for regulation of carbon dioxide. By this logic, cap and trade wouldalso have eliminated the need for carbon regulation. However, instead of reducingregulations, the cap-and-trade bills would have added to them. For instance, theWaxman-Markey bill went on for nearly 700 pages before it even began the cap-and-trade section. Just in case there is any confusion as to whether the left is willing totrade off regulation for a carbon tax, Representative Henry Waxman (D-CA) recentlycleared things up: “A carbon tax or a price on carbon would be a strong incentive forthe development of new technologies. But because it’s so complicated, I would notsupport preempting EPA. EPA can assure us that we can actually get the reductionswe need.”[7] In short, a carbon tax would be no substitute for regulation.

6.8 AT Tax Benefits

6.8.1 The tax benefits argument gets things backwards.


The technical phenomenon in the literature driving these result s is the “tax inter-action effect,” in which a new “green” tax (such as a carb on tax) interacts with thepre‐existing, distortionary taxes on labor and capital and makes them more dam-aging. Note that the carbon tax raises consumer prices and e ffectively reduces theafter‐tax earnings of labor and capital, acting as its own (implicit) tax on labor andcapital, but with the difference that it is concentrated in particular areas, rather than

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spread uniformly over all labor and capital. This is the intuition behind the resultsfound in the literature: as a general rule, even a doll ar‐for‐dollar carbon tax swapdeal will hurt the c onventional economy. Thus we see that the typical “pro‐growth”case for the carbon t ax gets things exactly backwards : Generally speaking, to the ex-tent that the U.S. tax code is a lready filled with distortions, the case for implementinga carbon tax of a p articular magnitude is actually weaker , not stronger, even if weare assuming full revenue‐recycling by reduction of those pre‐existing, distortionarytaxes.

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7.1 Case Studies

7.1.1 California

California was ‘clobbered’ by expensive carbon

Mark J. Perry, [professor of economics at the University of Michigan-Flint], “Pricey carbon taxclobbers California consumers, business,” American Enterprise Institute, January 27, 2015.

The most preposterous thing about a carbon tax, which California is in the process of implement-ing under the guise of a cap-and-trade program and which some other states are now considering,is the pretense that it will curb carbon emissions. This notion — that states can save the planetfrom getting too hot — is great soap opera, but it is just a way to bring more revenue to stategovernments regardless of its stated intent. Whether it’s called cap-and-trade or a carbon tax,California is now stuck with a fee on the carbon content of fuels. It’s the first of its kind in theUnited States, but environmental groups are urging other states to do the same. The CaliforniaAir Resources Board, whose goal is to reduce greenhouse gas emissions to 1990 levels by 2020,claims the tax is a cost for oil refineries. But that’s disingenuous. Oil companies will simply passthe carbon tax along to California consumers in the form of higher prices. Experts estimate thatthe tax — which took effect at the start of this year — has the potential to increase gasoline pricesby as much as 75 cents per gallon.

7.2 Economic Effects

7.3 Surface Rundown of Various Harms

Market distortions


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Finally, using carbon tax revenues to finance cuts in other distor tionary taxes reduces, but doesnot eliminate, the adverse consequences of the carbon tax policy for industry profits and invest-ment. When the revenues are used this way, fossil fuel producers and producers of fossil fuel-intensive products lose less than they would if revenues were re turned in lump-sum fashion, butthe losses do not vanish. Aggregate efficiency results suggest that a carbon tax must inevitablygenerate losses for at least some industries.

Hurts manufacturing

Derrick Morgan [Heritage Foundation] “A Carbon Tax Would Harm U.S. Competitiveness andLow-Income Americans Without Helping the Environment.” The Heritage Foundation, August2012.

While some may believe that the United States is a post-industrial power, it is still the world’s topmanufacturer[25] (although China is gaining), with manufacturing accounting for 12.2 percentof U.S. GDP.[26] Proponents of cap-and-trade acknowledged that a price on GHG emissionswould negatively affect domestic manufacturing unless the cost was fully and permanently offset.Additionally, to offset the impact on manufacturing fully and permanently would be to negate thedesired environmental impact of the policy (make it more expensive to emit GHGs and thereforereduce GHGs). To make up for the impact on manufacturers, the Waxman–Markey cap-and-trade bill gave temporary free allowances to manufacturers to ease the impact of the cap on emis-sions. Nearly all manufacturers use energy, and for those that emit greenhouse gases in significantquantities, such as steelmakers, a tax on a major input would be devastating. Moreover, a tax oncarbon would also affect those who use carbon-intensive fuels for feedstocks, as is the case in thechemical and fertilizer industry. The recent natural gas boom is encouraging more investment inthese industries,[27] but a carbon tax would make such investments much less appealing.

Hurts households

Aparna Mathur [American Enterprise Institute] and Adele Morris [Brookings] “DISTRIBU-TIONAL EFFECTS OF A CARBON TAX IN BROADER U.S. FISCAL REFORM.” The BrookingsInstitution, December 2012.

This paper measures the incidence of carbon taxes using both annual income and consumptionas a basis for the household burden of the tax. We analyze a $15 per metric ton tax on CO2 inthe year 2010. We first use economy-wide Input-Output tables from the Bureau of EconomicAnalysis to assess how the $15 tax would affect the industrial sector generally and particularly theprices of energy goods and other industrial goods in which these energy goods serve as inputs.We then use this information to calculate the increase in prices of consumer goods as a resultof the tax. Once we obtain the price increases in 33 categories of consumer goods, we calculate

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the burden of the tax on households using consumption data from the Consumer ExpenditureSurvey. Our results suggest that a carbon tax is regressive when using annual incomes as the basefor the incidence measure, but less regressive when using consumption. Our analysis suggests thatif policymakers direct about 11 percent of the tax towards the poorest two deciles, for examplethrough greater spending on social safety net programs than would otherwise occur, then thosehouseholds would on average be no worse off after the carbon tax than they were before. Ofcourse, individual households within those groups might be better or worse off depending ontheir individual energy consumption patterns and participation in federal spending programs.

Trembath and Step [Breakthrough] “Innovation Before Carbon Pricing.” The Breakthrough In-stitute, October 2013.

Carbon taxes are in vogue. Economists’ predilection for price signals as the universal solution hasfused with environmentalists’ impulse to punish Big Oil and Big Coal to make carbon taxes thedarling of the climate change debate.It’s the elegant solution climate hawks have been looking forsince the death of cap-and-trade. But as Dr. Rob Gross, the Director of the U.K. Imperial CollegeCentre for Energy Policy and Technology stated, this idea is, “so simplistic it is absurd.” Carbontaxes are doomed to fail because they do little to drive what is needed most: innovation thatgenerates affordable clean energy that all 7 billion humans will want to adopt, not out of altruismor coercion, but out of self-interest. This gets to the second major problem with the carbon tax.The only way to get to dramatic cuts in global emissions is by developing significantly cheaperand better clean energy technologies. Current clean energy alternatives cost significantly morethan conventional energy. Expecting consumers and businesses, especially in poor developingnations, to pay a large price premium for clean energy is wishful thinking. The only path to cheapand reliable clean energy is innovation: better batteries, better solar cells, better biofuels, betternuclear reactors, etc. Unfortunately, few economists focus on innovation and to the extent theydo they see it as “manna from heaven,” something that just happens. To the extent a carbon taxinduces innovation it is through the magic of the market: higher prices provide an incentive forentrepreneurs to develop a better energy mousetrap.

7.3.1 Carbon Tax Hurts Growth

A carbon tax would affect the price of everything

“The Institute for Energy Research (IER) is a not-for-profit organization that conductsintensive research and analysis on the functions, operations, and government regula-tion of global energy markets. IER maintains that freely-functioning energy marketsprovide the most efficient and effective solutions to today’s global energy and environ-

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mental challenges and, as such, are critical to the well-being of individuals and society.”http://instituteforenergyresearch.org/topics/encyclopedia/petroleum/#, accessed 1 January2016.

Today, oil meets 35 percent of US energy demand, with 71 percent directed to fuels used in trans-portation – gasoline, diesel and jet fuel. Another 24 percent is used in industry and manufactur-ing, almost 5 percent is used in the commercial and residential sectors, and less than 1 percent isused to generate electricity. Petroleum is the main mover of our nation’s commerce and its usefor transportation has made our world more intimate. It is the transportation fuel, as almost allof our nation’s transportation is dependent upon its concentrated liquid form.

Energy intensive industries would likely leave, resulting in layoffs

Perry, M. J. [professor of economics and finance at the University of Michigan’s Flint campus](2012, August 20). Carbon-tax plan would hobble our already sluggish economy. The Bulletin.http://www.bendbulletin.com/news/1383254-151/carbon-tax-plan-would-hobble-our-already-sluggish-economy. Accessed 2 January 2016

The hardest-hit sectors of the U.S. economy from a carbon tax would be energy-intensive indus-tries, particularly chemicals, car manufacturing, iron and steel, aluminum, cement, and miningand oil refining. These large industries would be at a serious disadvantage in the world market-place, and many companies would move production to countries without such a tax. The cost indollars, as well as in lost jobs, from a carbon tax would be staggering. And the cost would ulti-mately fall on American consumers — without necessarily generating any environmental benefitsif China, India and other countries with fast-growing economies continue to pollute.

Manufacturing, consumption would slow, reducing growth and government revenue

Anne E. Smith and David Harrison [Affiliations in order: Senior Vice President and Co-Chairof NERA’s Global Environment Practice, Senior Vice President at NERA Economic Consult-ing and Co-Chair of NERA’s Global Environmental Group], “Economic Outcomes of a CarbonTax,” by NERA Economic Consulting for the National Association of Manufacturers, February26, 2013. http://www.nam.org/Issues/Tax-and-Budget/Carbon-Tax/2013-Economic-Outcomes-of-a-US-Carbon-Tax-Full-Report.pdf

A carbon tax would have a net negative effect on consumption, investment and labor marketdecisions, resulting in lower federal revenue from taxes on capital and labor. As a result, evenwith a high tax on carbon, the net revenue from a carbon tax would be significantly less than theprojected carbon tax proceeds themselves. This is because existing tax revenue would fall dueto lessened economic activity. In the $20/ton case, the amount of tax revenue reductions ranges

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from $43 billion in 2013 to $145 billion in 2053. In the 80 percent reduction case, the loss infederal revenue rises to $910 billion by 2053.

Overall, a carbon tax would damage the economy and hurt the poor


Since an overwhelming majority of America’s energy needs are met by carbon-emitting fossil fu-els, regulations of these fuels directly raise the cost of electricity, gasoline, diesel fuel, and homeheating oil. Since low-income families spend a larger proportion of their income on energy, atax that increases energy prices would disproportionately affect the budgets of the poorest Amer-ican families. Businesses, faced with higher energy costs, would likely pass those costs on toconsumers. However, if a company had to absorb the costs, high energy costs would squeezeprofit margins and prevent businesses from investing and expanding. Investors might even movetheir funds away from energy companies and toward less regulated business enterprises, thus de-priving fossil-fuel-based companies much-needed cash for more efficient power generation. Theresult is higher energy costs, lower income, and fewer jobs.

A carbon tax would lead to over a million jobs lost and hurt industrial and manufacturingcompanies.


In 2012, the U.S. Energy Information Administration (EIA) made a comparison analysis for acarbon tax that starts at $25 and rises by 5 percent per year (after adjusting for inflation).[1]Compared to the baseline case, without the carbon tax, this would[2]: Cut the income of a familyof four by $1,900 per year in 2016 and lead to average losses of $1,400 per year through 2035;Raise the family-of-four energy bill by more than $500 per year (not counting the cost of gaso-line); Cause gasoline prices to increase by up to $0.50 gallon, or by 10 percent on an averagegallon price; and Lead to an aggregate loss of more than 1 million jobs by 2016 alone. In par-ticular, energy-intensive industries and manufacturing would feel the adverse effects of a carbontax, which comes at a time when many companies, lured by the prospect of abundant and cheapnatural gas, are moving to the United States. A recent KPMG analysis of the U.S. chemical in-dustry emphasizes, “With a new and abundant source of low-cost feedstock, the US market hastransformed to become one of the most advantageous markets for chemical production in theworld.”[3] A carbon tax would unnecessarily reverse this resurgence.

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7.3.2 Carbon Tax Hurts the American Energy Industry

The unconventional oil industry is the source of much of the US’s economic growth underObama

Porter, Michael [Bishop William Lawrence University Professor at The Institute for Strategy andCompetitiveness, based at the Harvard Business School], Gee, D., & Pope, G. (2015). America’sUnconventional Energy Opportunity. Harvard Business School and Boston Consulting Group.https://www.bcgperspectives.com/content/articles/energy-environment-sustainability-americas-unconventional-energy-opportunity/. Accessed 5 January 2016

Unconventional gas-and-oil resources are perhaps the single largest opportunity to improve thetrajectory of the U.S. economy, at a time when the prospects for the average American are weakerthan we have experienced in generations. America’s new energy abundance can not only help re-store U.S. competitiveness but can also create geopolitical advantages for America. These benefitscan be achieved while substantially mitigating local environmental impact and speeding up thetransition to a cleaner-energy future that is both practical and affordable.

The industry supports millions of jobs

Porter, Michael [Bishop William Lawrence University Professor at The Institute for Strategy andCompetitiveness, based at the Harvard Business School], Gee, D., & Pope, G. (2015). America’sUnconventional Energy Opportunity. Harvard Business School and Boston Consulting Group.https://www.bcgperspectives.com/content/articles/energy-environment-sustainability-americas-unconventional-energy-opportunity/. Accessed 5 January 2016

Unconventionals have already created major economic benefits for the U.S., adding more than$430 billion to annual GDP and supporting more than 2.7 million American jobs that pay, onaverage, two times the median U.S. salary. Fully 50% of the unconventionals production jobs aremiddle-skills jobs, accessible to the average citizen. The U.S. is still in the early stages of capital-izing on this economic opportunity, and current activity is concentrated in the upstream energy-production sector. With proper policies and actions by the industry and other stakeholders, thiseconomic opportunity can further spread into downstream.

Theunconventionals industry is vulnurable. They need high energy prices tomake productioneconomically viable, but a carbon tax would reduce energy demand, keeping prices low. Whilethis card makes no mention of a carbon tax, it makes clear that the unconventionals industryis very price-vulnurable.

“In a bind,” The Economist, December 6, 2014. http://www.economist.com/news/finance-and-economics/21635505-will-falling-oil-prices-curb-americas-shale-boom-bind

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Even the gods of shale disagree about the industry’s resilience. The boss of Continental Resources,Harold Hamm (whose fortune has dropped by $11 billion since July), has said he can cope aslong as the oil price is above $50. Stephen Chazen, who runs Occidental Petroleum, has saidthe industry is “not healthy” below $70. The uncertainty reflects the diversity of activity. Wellsproduce different mixes of oil and gas (which sells for less). Transport costs vary: it is cheap to pipeoil from the Eagle Ford play, in Texas, but expensive to shift it by train out of the Bakken formation,in North Dakota. Firms use different engineering techniques to pare costs. Two generalisationscan still be made. First, in the very near term, the industry’s economics are good at almost anyprice. Wells that are producing oil or gas are extraordinarily profitable, because most of the costsare sunk. Taking a sample of eight big independent firms, average operating costs in 2013 were$10-20 per barrel of oil (or equivalent unit of gas) produced—so no shale firm will curtail currentproduction. But the output of shale wells declines rapidly, by 60-70% in their first year, so withina couple of years this oil will stop flowing. Second, it is far less clear if, at $70 a barrel, the industrycan profitably invest in new wells to maintain or boost production. Wood Mackenzie, a researchconsultancy, estimates that the “break-even price” of American projects is clustered around $65-70, suggesting many are vulnerable (these calculations exclude some sunk costs, such as buildingroads). If the oil price stays at $70, it estimates investment will be cut by 20% and productiongrowth for America could slow to 10% a year. At $60, investment could drop by as much as halfand production growth grind to a halt.

7.3.3 A carbon tax harms rural areas and industrial production.

Rural areas depend on cheap energy

David Murrell, [PhD], “Eight Arguments against a Carbon Tax,” Canadian Centre for Policy Stud-ies, 2008.

Once a carbon tax is imposed, demand for energy-i ntensive products (like coal and oil) willfall. That’s the whole idea. This will for ce a commensurate reduction in the production of suchproducts, with provinces like Alberta, Saskatchewan and New Brunswick being hurt the most.(Recall the National Energy Plan!) A carbon tax will harm rural areas too, but in a different way.Rural re sidents use relatively more gasoline and diesel fuel than residents in urban areas, andeconomic data shows that rural residents tend to have lower income s, relative to their urbancounterparts. Consequently the “tax neutrality” claim by the Li berals is false. Thos e living inurban areas will gain, while those living in rural areas will lose. This is already being seen in thetax revolt starting in British Columbia, given that province’s new carbon tax. The tax revolt iscentred in rural areas, and among truckers.

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7.3.4 Carbon Tax Hurts the Poor

Carbon tax would be regressive

Clifton Parker [Deputy Director, Social Science Communications at Stanford University], “Stan-ford research finds carbon regulation burden heaviest on poor,” Stanford news, February 28, 2014.http://news.stanford.edu/news/2014/february/kolstad-carbon-tax-022814.html

The heaviest burden for climate change regulation costs falls on people – especially lower incomegroups – and not corporations, according to new Stanford research. The reason is that companiesultimately pass on those costs to people. For the poor, basic necessities take up a bigger chunkof the budget than for the rich. “Households in the lowest income group pay, as a percent ofincome, more than twice what households in the highest 10 percent of the income distributionpay,” wrote economist Charles Kolstad, a senior fellow at the Stanford Institute for EconomicPolicy Research and the Precourt Institute for Energy. The research gives impetus to adoptinga fairer approach to carbon regulation costs, Kolstad said. “This regressivity can be addressedthrough transfer payments, if and when the U.S. decides to regulate greenhouse gases leading toclimate change,” said Kolstad, who researches environmental economics, regulation and climatechange. As an example, he suggests reducing the payroll tax for lower income groups as a way tomake a carbon tax more fair. The study examined Bureau of Economic Analysis data and used a$15 per metric ton carbon “tax” as a scenario. In other words, every person or organization (suchas a company) that emits carbon into the atmosphere would pay a tax on the total amount emittedmultiplied by $15 per metric ton of carbon. The researchers looked at how such a hypotheticaltax would hit individual income groups, industries and different regions. Kolstad said that priceand substitution effects may somewhat dampen the regressive nature of such costs. For example,when prices change, people change what they do. If the price of heating oil goes up, people mayuse more electricity or natural gas to warm their homes. The paper was published as a SIEPRpolicy brief and is based on detailed analysis by Kolstad and Corbett Grainger of the Universityof Wisconsin-Madison.

A carbon tax is regressive and hurts the poor.

David Roberts, [Grist staff writer], “10 reasons a carbon tax is trickier than you think,” Grist, 19November 2012, http://grist.org/climate-energy/ten-reasons-a-carbon-tax-is-trickier-than-you-think/.

I mentioned this is passing already, but it’s worth emphasizing. On their own, carbon taxes hit thepoor harder because the poor spend a larger proportion of their income on energy. It isn’t difficultto solve that problem. Using the revenue to reduce payroll taxes would do it. Setting aside somerevenue for direct rebates to low-income taxpayers would do it. (By the way, the Waxman-Markey

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bill did exactly that.) But swapping a carbon tax for the income tax wouldn’t. Using carbon taxrevenue to reduce the deficit wouldn’t. If climate hawks want progressivity — and they should, ifthey hope for broad grassroots support — they’ll have to fight for it.

The carbon tax hits the poor the hardest.

Laurent Belsie, [NBER], “How Regressive is a Price on Carbon?” January 10 2015, National Bu-reau of Economic Research, http://www.nber.org/digest/jan10/w15239.html

Under either a cap-and-trade program that limits carbon emissions or a carbon tax that imposesan outright tax on these emissions, the poor may be among the hardest hit. Because they spenda greater share of their income on energy than higher-income families, households in the lowestfifth of the income distribution could shoulder a relative burden that is 1.4 to 4 times higher thanthat of households in the top fifth of the income distribution, according to a study by CorbettGrainger and Charles Kolstad. In Who Pays a Price on Carbon? (NBER Working Paper No.15239), they show that the burden on the poorest households doubles when a price on carbon istargeted narrowly on energy consumption (and not other energy uses) rather than broadly acrossall industries. “Our results suggest that the burden as a percent of annual income is much higheramong lower income groups than higher income groups,” the authors write.

A carbon tax hurts the poor.

Derrick Morgan, [Vice President for Domestic and Economic Policy at the Heritage Foundation],“A Carbon Tax Would Harm U.S. Competitiveness and Low-Income Americans Without Helpingthe Environment,” Heritage Foundation Research Report, 2012.

The poor tend to spend a higher proportion of their earnings on energy, particularly utilities andtransportation. Moreover, some Americans use more fossil-fuel energy than others because ofdriving distances (rural families drive more—27,700 miles per household vs. 17,600 miles for ur-ban households[44]); geography (less temperate weather means more heating and cooling costs);and already constructed energy infrastructure (coal plants are prevalent in the Midwest near min-ing operations). A carbon tax would disproportionately hit these families, whose behavior is dif-ficult to change in the short run. While economists like to imagine that the carbon tax wouldbe offset by reductions in taxes on capital or some other particularly economically damaging tax,the fact is that, politically, it is far more likely that funding from the carbon tax would be usedto reduce the tax’s impact on the poor. Senator Barbara Boxer (D–CA), who chairs the SenateCommittee on Environment and Public Works, rejected the idea of using new revenue from thecarbon tax to reduce corporate taxes—a favorite idea among some on the center-right—and saidthat any revenues should be used “to make sure…the middle class gets the breaks in the interimwhile we move to clean energy.”[45]

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7.4 Political Effects

7.4.1 Tradeoff with other regulations

A carbon tax means axing EPA regulations in exchange.

David Roberts, [Grist staff writer], “10 reasons a carbon tax is trickier than you think,” Grist, 19November 2012, http://grist.org/climate-energy/ten-reasons-a-carbon-tax-is-trickier-than-you-think/.

Exxon has been supporting a carbon tax (notionally) for several years, but it’s made clear that itsees such a tax as “an alternative to costly regulation.” This is what everyone’s favorite dirty-energylobbyist Frank Maisano recently wrote (behind a paywall): No carbon tax should be consideredbefore serious regulatory reform is undertaken. The U.S. EPA is moving forward on an approachthat regulates carbon, which is akin to fitting a square peg in a round hole. Not only is it legallydubious, but it is not likely not work in practice, either. Suffice to say, the fossil fuel lobby wouldnever give a carbon tax their OK unless EPA regulations on carbon (and possibly other pollutionregs) were scrapped. We saw this fight play out once already, around the cap-and-trade bill. Unlessit was for a high-and-rising tax (which is unlikely), that would be a terrible trade for greens. Theimplicit carbon price in EPA regs is higher than an explicit tax would likely be. In developingregulations, EPA uses the government’s official “social cost of carbon,” which is around $26/ton.There’s good reason to think that figure is dramatically too low. But it is already higher than apolitically realistic carbon tax.

7.5 The Environment

7.5.1 Various Sources Discussing Carbon Leakage

Elliot et al [UChicago Law] “Unilateral Carbon Taxes, Border Tax Adjustments, and Carbon Leak-age.” University of Chicago Law School, June 2012.

A third goal was to simulate a variety of tax policies to understand their likely effects. Withinour CGE model, we consider perfect border taxes and a number of imperfect taxes such as a taxbased on a global schedule of emissions for different types of goods. Our simulations show thatimperfect border taxes may be significantly inferior at reducing leakage than perfect border taxes.The reason appears to relate to the incentives on foreign producers: with imperfect taxes theygain no benefit from switching to clean production technologies. Our simulations also show theimportance of global emissions reductions policies. Carbon taxes only in Annex B have limited

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potential to reduce emissions, and this is not a result of leakage. Even without leakage, the largeexpected increases in emissions in the developing world swamp the potential reductions in AnnexB.

Derrick Morgan [Heritage Foundation] “A Carbon Tax Would Harm U.S. Competitiveness andLow-Income Americans Without Helping the Environment.” The Heritage Foundation, August2012.

Even if one assumes that rising levels of carbon dioxide in the atmosphere lead to higher globaltemperatures, a carbon tax in the United States that reduces emissions domestically would havezero direct effect on foreign emissions if we acted alone. In fact, unilateral action by the U.S.would have very little effect on total global emissions


The effect of a carbon tax on emissions-intensive, trade-exposed industries is similar to a tax onexports or a tax on import-competing industries. Domestic emissions in these industries mayfall after a carbon tax is imposed, but that cannot be counted as an environmental gain if theultimate effect is that emissions simply rise overseas. The net effect is a pure deadweight cost tothe economy.


A second goal was to understand the structure of the leakage problem and to understand whichparameters drive leakage. One central conclusion in this regard is that a key variable is the priceelasticity of energy supply. For both production taxes and border taxes, a low price elasticity ofenergy supply means that leakage is likely to be high. What really matters for global emissions isthe total amount of fossil fuels extracted. If energy supply is inelastic, a regional carbon tax willhave little effect on global extraction. These results show up in both our analytic model and inour CGE model. In thinking about the design of regional emissions systems, it might be wise tofocus on energy supply as much as on demand.

Joost Pauwelyn [Georgetown Law] “Carbon Leakage Measures and Border Tax Adjustments un-der WTO Law.” Duke University, 2012.

One of the major obstacles toward the adoption of mandatory limits on greenhouse gas emissionsis the impact of such limits on the international competitiveness of domestic firms. Limits ongreenhouse gas emissions – be they in the form of regulation, a carbon tax or a cap-and-tradesystem2 – may impose extra costs on domestic industries. Where foreign firms do not bear similar

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costs, domestic firms may lose their competitive edge. In particular, with a domestic climatepolicy in place, imports from countries without mandatory carbon restrictions may gain a priceadvantage over domestic goods. It is exactly this asymmetry that led the US Senate3 to reject theKyoto Protocol4 , an international agreement that did not require emission cuts from developingcountries.5 The competitiveness impact of climate change policy may play out both at home (onthe domestic market) and abroad (on world markets). It can be particularly acute for energy-intensive manufacturers such as the iron and steel, aluminium, cement, glass, chemicals and pulpand paper industries.


As noted, the standard view is that there are two causes of leakage. First, when only one partof the world taxes emissions, energy-intensive production shifts from the taxing region to thenon-taxing region; shifting energy-intensive production to the non-taxing region avoids the tax.Second, because the tax reduces energy use in the taxing regions, overall energy prices may fall,creating an incentive for greater energy use (and emissions) in the non-taxing region.

Jakob et al [Potsdam Institute for Climate Impact Research] “Between a Rock and a Hard Place: ATrade Theory Analysis of Leakage under Production and Consumption Based Policies.” Nature,February 2011.

In this context of a fragmented policy regime, a frequently discussed issue is the possibility that inresponse to ambitious reduction targets adopted by some countries, energy intensive industriesmight migrate to countries with a less stringent or nonexistent regulation of emissions (e.g., VanAsselt and Brewer, 2010). Hence, in absence of a global climate agreement, domestic emission re-ductions of early-movers could to a significant part be offset by increased emissions in other partsof the world, a phenomenon commonly referred to as carbon leakage (e.g. Felder and Rutherford,1993).

7.5.2 More on Carbon Leakage

Carbon tax could encourage polluters to move out of the country, where pollution can occurwith even less regulation than presently exists in the US

Barker, T.; et al. (2007), B. Metz (Eds.); et al., eds., 11.7.2 Carbon leakage. In (book chapter):Mitigation from a cross-sectoral perspective. In (book): Climate Change 2007: Mitigation. Con-tribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panelon Climate Change, Print version: Cambridge University Press, Cambridge, U.K., and New York,

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N.Y., U.S.A.. https://www.ipcc.ch/publications_and_data/ar4/wg3/en/ch11s11-7-2.html

Carbon leakage is defined as the increase in CO2 emissions outside the countries taking domesticmitigation action divided by the reduction in the emissions of these countries. It has been demon-strated that an increase in local fossil fuel prices resulting, for example, from mitigation policiesmay lead to the re-allocation of production to regions with less stringent mitigation rules (or withno rules at all), leading to higher emissions in those regions and therefore to carbon leakage. Fur-thermore, a decrease in global fossil fuel demand and resulting lower fossil fuel prices may leadto increased fossil fuel consumption in non-mitigating countries and therefore to carbon leakageas well. However, the investment climate in many developing countries may be such that theyare not ready yet to take advantage of such leakage. Different emission constraints in differentregions may also affect the technology choice and emission profiles in regions with fewer or noconstraints because of the spillover of learning (this is discussed in Section 11.7.6).

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8.1 AT: Conservative Backlash

8.1.1 Conservatives should support a carbon tax.

Three reasons a carbon tax works with conservative ideology

Jerry Taylor [President of the Niskanen Center, former staff director for the energy andenvironment task force at the American Legislative Exchange Council], “The Conser-vative Case for a Carbon Tax: Q&A With Jerry Taylor,” May 5 2015, Huffington Post,http://www.huffingtonpost.com/mark-tercek/the-conservative-case-for-a-carbon-tax_b_7214984.html

Three reasons. First, it is a less expensive, more efficient and more effective policy than the statusquo: EPA regulation via the Clean Air Act and a host of green energy subsidies and mandates.And there is no plausible political scenario in which those regulations and subsidies can be rolledback by raw conservative political force. Second, greenhouse gas emissions impose risk. Thoserisks have a cost, and incorporating those costs into market prices is the best means by whichwe can address the risks posed by climate change. Third, it is the principled conservative posi-tion. Government’s role is to protect the rights to life, liberty, property and the pursuit of happi-ness. If party A is harming the person or property of party B, it is the government’s job to enjointhose rights violations or to somehow make the harmed party whole. There is no asterisk in con-servative or libertarian ideological doctrines that says, “unless energy companies are the partiesresponsible.” Or at least, there shouldn’t be.

8.1.2 The alternative to a carbon tax is even worse.

Ignoring climate risks is way worse than whatever backlash will happen

Jerry Taylor [President of the Niskanen Center, former staff director for the energy and environ-ment task force at the American Legislative Exchange Council], “The Conservative Case for aCarbon Tax,” Niskanen Center, March 23, 2015.

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The alternative to a carbon tax is not a policy of ignoring climate risks. The alternative to a carbontax is a plethora of command - and - control regulatory interventions at every level of governmentand subsidies for low - carbon technologies and practices. Those interventions already imposea so rt of carbon tax. Regulatory costs increase the price we pay for energy - related goods andservices. But unlike a carbon tax, the increased costs are invisible to consumers. The carbon taxdelivered by command - and - control regulation is uneven, invisible, inefficient, and economi-cally incoherent. EPA’s proposed regulations for new coal - fired. power plants (under section111(b) of the Clean Air Act 7 ) dictate carbon capture and s torage technology that reduces CO2emissions at a cost of $88 - $131 per ton. 8 The agency’s proposal for regulating existing powerplants (“The Clean Power Plan,” issued under section 111(d) of the Clean Air Act) leaves the de-tails up to the states, so it i s unclear exactly what regulatory initiatives will follow. 9 We can besure, however, that they will be expensive. While the EPA does not provide aggregated cost esti-mates in their rulemaking, 10 a study by the U.S. Chamber of Commerce puts the total regulatoryprice tag through 2030 at $478 billion, annual GDP losses over that period at $51 billion, and thecost of greenhouse gas emissions reducti on s under the EPA plan at $153 - 163 per ton. 11 Thi sis much higher than the agency’s estimate of the social cost of carbon emissions in 2030: $17 perton using a 5 percent discount rate, $55 per ton using a 3 percent discount rate, and $85 per tonusing a 2.5 percent discount rate. 12 Another study perfor med by NERA Economic Consultingfor seven industry trade associations found that the Clean Power Plan will cost the energy sector$366 - 479 billion (assuming a 5 percent discount rate) over 2017 - 2030. Retail electricity priceswould increase by 12 - 17 perce nt.

8.2 AT: Social Cost Impossible To Calculate

8.2.1 Emissions reduction target based taxes are more plausible

We do not need to know the social cost of pollution to implement a carbon tax that at leasthelps


Other options for setting the tax rate include setting it according to what would be needed toachieve a specific emissions outcome (e.g. 80% reduction by 2050) or setting it to achieve a revenuegoal. Economic modeling could suggest an appropriate starting tax and escalation rate to achieveeither of these goals. Likely an approach designed to achieve an aggressive emissions goal would

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require higher starting tax rates and a more aggressive escalation rate. At the very least, in eithercase, a steady increase in the tax rate will be necessary to offset emission increases and economicgrowth.

8.3 AT: Carbon Leakage/Others Pollute

8.3.1 US’s Share of Global Fossil Fuel Consumption Is Enormous

The US is responsible for roughly 20% present day warming. Unilaterally reducing Americanemissions could therefore make a dent in warming

Santiago Miret [PhD student in Materials Science & Engineering, Berkeley]. Ranking GlobalWarming Contributions by Country. Berkeley Energy & Resources Collaboratives. January 20,2014 http://berc.berkeley.edu/ranking-global-warming-contributions-by-country/.

“The results of the study show that the United States is the clear leader is both GHG emissions andcontributions to global warming. Of the 0.7 C increase in global temperature since pre-industrialtimes, the United States alone has contributed 0.15 C (~20%). The top seven contributors aloneaccount for ~63% of warming contributions, and the top 20 countries account for ~82%. China,which is presently the largest global emitter of GHGs, ranks 2nd on historical contributions toglobal warming, followed by Russia and Brazil and India. Brazil and India are interesting casesgiven that most of its CO2 emissions have originated from land-use emissions, meaning thatdeforestation has contributed to Brazil’s high ranking. This is different from the other top GHGemitting countries, whose main CO2 emissions can be tied back to the burning of fossil fuels. Thestudy also includes the cooling effects that aerosol emissions have on the global climate. Generally,countries that emit larger quantities of CO2 also produce larger amounts of aerosols, which helpcounteract the warming effects of the CO2 emissions.

8.3.2 US needs to signal commitment

US is the logical initial actor

William Gale [he Arjay and Frances Miller Chair in Federal Economic Policy in the EconomicStudies Program at Brookings], “The Tax Favored By Most Economists,” Brookings Institution,March 12, 2013. http://www.brookings.edu/research/opinions/2013/03/12-taxing-carbon-gale

The second concern is whether the U.S. should act unilaterally. Without cooperation from therest of the world, critics fear that a U.S. carbon tax would reduce economic activity here and

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make little difference to overall carbon emissions or levels. This view, however, understates thevalue of a permanent price signal for research and development and the social and environmentalvalue of the reduction in carbon emissions that would come from U.S. action. It also discountsthe experience of other countries that unilaterally created carbon taxes; there is no evidence thatthey paid a significant price, or any price at all, in terms of economic activity levels. If there isever going to be multilateral action to limit carbon emissions, the US – as the largest per-capitaemitter of carbon dioxide – needs to take a leading role.

Unilateral implementation is key to future global agreements

Jerry Taylor [President of the Niskanen Center, former staff director for the energy andenvironment task force at the American Legislative Exchange Council], “The Conser-vative Case for a Carbon Tax: Q&A With Jerry Taylor,” May 5 2015, Huffington Post,http://www.huffingtonpost.com/mark-tercek/the-conservative-case-for-a-carbon-tax_b_7214984.html

If the United States were to unilaterally impose a carbon tax and apply that tax to the GhGs embed-ded in imported goods as if they were produced domestically, a large part of global productionwould be captured by carbon taxes collected by the U.S. Treasury. Foreign nations exportinggoods to the U.S. economy would thus have a choice: stand pat and let the U.S. capture carbontax revenue from their own domestic production, or impose equivalent taxes and send those samerevenues to domestic treasuries. The incentive to impose carbon taxes is clear. A global agree-ment to codify carbon taxation would be easier to achieve under those circumstances and far lesssubject to scrums about appropriate baseline emissions levels. All governments need revenue.Getting that revenue from GhG emissions is no worse – and arguably better – than getting thatrevenue directly from wealth creation or labor. Were the United States to lead on that front, it’smore likely that other governments would follow than would be the case were the United Statesto continue on its current regulatory path.

8.3.3 The leakage argument is overstated.


While this is to some extent true, the “emissions leakage” rationale for doing nothing is over-stated. Adoption of the Kyoto Protocol in Europe has likely failed to capture 5 - 20 percent of theemissions from 1995 - 2005, 69 a finding that ad ds weight to a recent analysis finding that a $50carbon tax applied to select sectors of the U.S. economy would fail to capture about 14 percent ofemissions due to leakage. 70 That same study found that a broad - based carbon tax imposed on

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all sectors of t he U.S. economy would produce a leakage rate of only about 9 percent. 71 Evenso, leakage caused by a global carbon tax can be addressed. Some of the revenue from a domesticcarbon tax could be rebated to domestic industries most heavily impacted by leakag e. Chargescould be imposed on imported goods the equivalent of what they would have had to pay hadthe imported goods been produced in the United States. 72 The larger observation that unilat-eral U.S. action will have little effect on future global temper atures underscores the fact that thelong, steady buildup of greenhouse gases in the atmosphere over the past century has renderedmodest emissions constraint of little value. No one denies that global (as opposed to national orregional) action offers th e best hope to reverse warming trends because it would control more ofthe emissions at issue.

8.3.4 Carbon Taxation Does Far More For The Environment Than Reduce DomesticEnergy Consumption

Many non-climate change related benefits to a carbon tax


Mr Cowen argues for caution on this point for several reasons. A carbon tax will be less effectiveif it’s not universally applied, potentially leading to carbon leakage to countries with looser envi-ronmental rules. He worries that where carbon fees have been applied innovation has not beenquick to respond. He fears that good substitutes for carbon fuels don’t exist, especially in thetransport sector, and worries that higher fuel prices might harm the economy. He suggests thata “green-energy subsidies first” policy might make more sense, and he talks about distributionaland rent-seeking costs of the policy. I think the weakness of these arguments is telling, and it’snot surprising that Mr Cowen continues to support a carbon tax. What if a carbon price doesn’timmediately drive emission reductions? Then the tax will be an effective revenue raiser, muchmore efficient than a tax on income. Either way you win. The worry about carbon leakage is areal one, but this dynamic also implies that each new country that prices carbon increases thebenefit of existing carbon-price policies in other countries.

Reductions in pollutants justify carbon tax


Even if a U.S. carbon tax fails to promote global action, it will nonetheless produce non - climate

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benefits. A recent study by the International Monetary Fund, for instance, finds that a $30 per toncarbon tax would produce $37 worth of non - climate benefits from reductions in conventionalpollutants and, by increasing the cost of driving, from reductions in road congestion, vehicleaccident risk, and road maintenance costs. 75 A carb on tax with co - benefits paired with awealth - creating tax cut could very well be welfare enhancing even if the climate benefits arezero.

8.4 AT: Economic Harms

8.4.1 Citi Study

Economic analysis indicates that it would be far more expensive to allow warming to set inthan to try to stop it

Dana Nuccetelli [Blogger on environmentguardian.co.uk, an environmental scientist and riskassessor], “Citi report: slowing global warming would save tens of trillions of dollars,” TheGuardian, August 31, 2015. http://www.theguardian.com/environment/climate-consensus-97-per-cent/2015/aug/31/citi-report-slowing-global-warming-would-save-tens-of-trillions-of-dollars

Citi Global Perspectives & Solutions (GPS), a division within Citibank (America’s third-largestbank), recently published a report looking at the economic costs and benefits of a low-carbon fu-ture. The report considered two scenarios: “Inaction,” which involves continuing on a business-as-usual path, and Action scenario which involves transitioning to a low-carbon energy mix. Oneof the most interesting findings in the report is that the investment costs for the two scenariosare almost identical. In fact, because of savings due to reduced fuel costs and increased energyefficiency, the Action scenario is actually a bit cheaper than the Inaction scenario. What is per-haps most surprising is that looking at the potential total spend on energy over the next quartercentury, on an undiscounted basis the cost of following a low carbon route at $190.2 trillion isactually cheaper than our ‘Inaction’ scenario at $192 trillion. This, as we examine in this chapter,is due to the rapidly falling costs of renewables, which combined with lower fuel usage from en-ergy efficiency investments actually result in significantly lower long term fuel bill. Yes, we haveto invest more in the early years, but we potentially save later, not to mention the liabilities of cli-mate change that we potentially avoid. The following figure from the Citi report breaks down theinvestment costs in the Action ($190.2 trillion) and Inaction ($192 trillion) scenarios. This con-clusion soundly refutes the main argument against climate action – that it’s too expensive, withsome contrarians even having gone so far as to claim that cutting carbon pollution will create

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an economic catastrophe. To the contrary, the Citi report finds that these investments will savemoney, before even accounting for the tremendous savings from avoiding climate damage costs.What about those avoided climate costs? As shown in the bottom left corner of the above figure,the difference in climate damage costs between low (1.5°C) warming and high (4.5°C) warmingscenarios could be as high as $50 trillion. Even moderate (2.5°C) warming could cost $30 trillionless than a business-as-usual high global warming scenario.

8.5 AT: Regressive Tax

8.5.1 A carbon tax can be designed to be pro-poor through a lumpsum rebate.

Aparna Mathur, [resident scholar in economic policy studies at the American Enterprise Insti-tute], “A carbon tax can be designed to be pro-poor,” American Enterprise Institute, September29, 2015, Forbes.

First, money can be returned to households through a lumpsum rebate. In a recent paper, AdeleMorris and I calculated that if 11 percent of the revenues were returned to the bottom 20 percent ofthe income distribution, then on average those households would not be worse off than before thetax. Another policy paper from the Center on Budget and Policy Priorities shows that revenuescould be used to help low-income households through provisions of refundable tax credits orthrough expansions of SNAP benefits for low-income households. In another paper, RobertonWilliams et al. show that a lumpsum rebate to all households would be progressive as low-incomehouseholds would be made better off. The driving force behind these studies is that it is possibleto design a carbon tax policy in such a manner that it does not conflict with helping those inpoverty.

8.5.2 Regressive taxes could be fixed through a tax swap.

Aparna Mathur, [resident scholar in economic policy studies at the American Enterprise Insti-tute], “A carbon tax can be designed to be pro-poor,” American Enterprise Institute, September29, 2015, Forbes.

A second policy possibility involves a tax swap. In this case, the revenues from a carbon taxare used to lower other distortionary taxes in the economy, such as corporate income taxes orpersonal income taxes. While all tax swaps offset some of the burden of a tax and improve effi-ciency, new research shows that a corporate income tax swap would be the most efficient, leastcostly policy because corporate income taxes are the most distortionary taxes. But, a corporate

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tax cut favors higher income households more than lower income households, and so it is still aregressive policy. In general, the trade-off in the use of revenues is between efficiency and distri-butional concerns. The most efficient use of revenues (corporate tax swap) is regressive, and themost progressive policies that aim to help low-income households are perhaps the least efficient.Policymakers need to understand and be willing to make these trade-offs in order to develop apolitically feasible carbon tax proposal. As we debate energy policies and climate change, it isimportant to keep in mind that both regulations and carbon taxes impose costs on the economy,and these costs impose burdens on households. The only difference is that with regulations, thesecosts are likely to be higher, more burdensome and less transparent than with a tax. The fact thatwe understand better the burden of a carbon tax and how to offset it for low income households,should make us more likely to adopt this policy, not less so.

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the united states federal government should adopt a carbon tax. february 2016 public forum briefs

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