Likely Results of a Carbon Tax

Likely Results of a Carbon Tax
Likely Results of a Carbon Tax
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Can the best be the enemy of the good? Just take a look at the way Brad Plumer of the Washington Post interprets the above graph of the effects of a carbon tax of $20 per ton imposed on the economy in 2013 and then raised 4 percent per year thereafter.

The figures were compiled by Sebastian Rausch and John M. Reilly of the MIT Global Change Institute. They project the reduction in carbon emissions that would occur as a result of a carbon levy. The horizontal axis represents time from 2006 thru 2045. The vertical axis represents U.S. carbon emissions in millions of metric tons per year. The blue line represents the pathway without a carbon tax. The black line represents the projections as made by the International Energy Agency. The green line at the bottom represents the projected reduction in emissions that would come from the carbon tax.

The clear result is a diverging pathway with emissions following a long-term declining path instead of increasing steadily. By 2020 there is a 15 percent reduction in emissions. By 2030 this has widened to 20 percent and by 2045 it is close to 1/3rd.

Does this seem like a worthwhile undertaking? Well, no, says Plumer. He is upset because carbon emissions do not go down much with the carbon tax after 2030. Following the lead of Mark Muro of the Brookings Institution, he also says that such a result is not enough to “make a significant dent in U.S. global-warming emissions.” In particular, it is well below the “80 percent cut by 2050 that the White House has envisioned.”

The real objection to these improvements, however, seems to be that the revenues raised by the carbon tax, according to most suggestions, would be used to reduce other taxes. Both Plumer and Muro find this unsatisfactory. They want government spending on clean technologies. “Without further policies [i.e., government investment], it’s unlikely that we’ll see a sweeping transformation of our energy system to give people alternatives to coal plants and gasoline-powered cars.”

The insistence that revenues from a carbon tax be spent on further adventures government investment rather than deficit reduction and returning money to the private sector is probably a good preview of the debate that is likely to emerge if Congress ends up discussing a carbon levy next session.

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