The entrenched power of the fossil-fuel industry and its political backers isn't the only thing standing in the way of climate-saving carbon taxes. Outmoded ideas and enduring myths about energy use and taxes are also a factor.

This page describes and dissects some of these misconceptions. Please send us your own favorite fallacies about carbon taxes. Ditto your suggestions or criticisms of ours.

Myth #1. New taxes on carbon emissions or energy will hurt the poor and middle class.

Who says? Some low-income advocates, some civil rights groups, some conservatives masking as populists.

Rebuttal: The wealthy use more energy by far. For example, for every gallon of gas used by the poorest quintile (20%) of households, the richest quintile use three to four gallons. (See Slideshow, Slide #26.) The same holds for electricity, jet fuel, even diesel that fuels the trucks that deliver goods. Energy taxes can therefore be made progressive, i.e., beneficial to people of below-average means, by redistributing the tax revenues equally to all. As an alternative, the carbon tax revenues could be directed to "tax-shifting" -- reducing regressive taxes such as state sales taxes and federal social security check-offs. (See our Issues page, Managing the Impacts.) Energy-efficiency measures can be targeted to subsets of the population that stand to be harmed, such as the rural poor who must drive long distances for work. What's really regressive is the ongoing laissez-faire rises in fuel prices, not a penny of which is rebated to the public. CTC is committed to ensuring that carbon taxing is progressive, not regressive.

Myth #2. Energy taxes won't change habits -- after all, high gas prices haven't cut usage.

Who says? An odd collection of groups and individuals, including former Sierra Club "CAFE" (car fuel-economy) lobbyist Dan Becker ("Even as gas prices have doubled and trebled over the past several years, we see little change in driving behavior," Becker told the New York Times in October, 2006.)

Rebuttal: Three points are key. First, until very recently, the rise in gasoline prices wasn't nearly as steep as commonly believed. The U.S. average inflation-adjusted pump price in 2007 was only 54% higher than the 2003 price, not 100% or 200% higher. Second, much of the increase was masked by price volatility. As we showed here, gas prices fell almost as often on a month-to-month basis as they rose during that period, masking the upward trend and convincing millions of Americans that prices would head south soon enough to make adjustments unnecessary. Third, use of gasoline and other energy is heavily driven by economic activity, and the U.S. economy expanded vigorously over those 4 years. Thus, the flattening in gasoline use during the recent expansion (up just 1.0% a year while GDP grew at 2.9% annually) demonstrates price elasticity.  Price-responsiveness grows over longer periods, as households have opportunities to buy more fuel-efficient vehicles and appliances and society transitions to a more fuel-efficient infrastructure -- once we enact fuel or carbon taxes to send clear and strong price signals. (See our Issues page, Carbon Tax Effectiveness, for more discussion.)

Myth #3. Taxes on carbon emissions aren't necessary. Vehicle efficiency standards and mandates or subsidies for wind, ethanol, hydrogen, nuclear power [pick one or more] will solve the problem.

Who says? Special interests, many environmental groups, many security advocates, technology buffs.

Rebuttal: Standards and subsidies are blunt instruments -- vehicle efficiency standards don't influence vehicle usage, for example -- and are often contested for years and then undermined by "gaming" (viz., the 20-year stasis in CAFE standards, or tax credits for hybrid SUV's). Moreover, fuel usage is ever-changing and diffuse (more than 55% of petroleum is not used in cars or light trucks, for example), while efficiency standards are by nature both usage-specific and frozen in time. As for supply, it is the rare energy subsidy that has actually brought forth meaningful amounts of new energy. Economic theory predicts, and hard experience confirms, that only taxes on fuels can create the clear, rapid, across-the-board incentives needed to propel a massive shift to clean alternatives.

Myth #4. Heavy fuel taxes will wreck the economy.

Who says? Traditional growth champions, fossil fuel interests.

Rebuttal: What causes economic havoc isn't high energy prices or even rising prices, but price volatility. Even fairly steep price increases can be manageable so long as they're regular and predictable, particularly now that the share of economic activity occupied by the fossil fuels sector is at an historic low. And carbon taxes need not be draconian to accomplish their mission. Our program of recurring annual increases of $37 per ton of emitted carbon equates to 5-10% increases in energy prices per annum (with the percentages shrinking as the "base" rises and as non-fossil energy assumes a larger share). By comparison, the average annual real increase in U.S. gasoline prices in 2003-07 was 11%, and this didn't stop the economy from growing at 3% a year. Needless to say, the true threat to the economy (and everything else) is unchecked climate change, as the Stern Report has shown.

Myth #5. Carbon taxes will provide more revenue for government to squander.

Who says? Anti-tax groups, some conservatives.

Rebuttal: Not if the new revenues are rebated or dedicated to shifting from current taxes (see Myth #1). Because higher taxes on fuels will create a strong "market pull" to clean energy, the revenues don't need to be earmarked for hybrid cars, mass transit, biofuels, etc. -- or to lawmakers' pet projects -- for carbon taxes to put a big dent in fossil fuel use and CO₂ emissions.

Myth #6. Heavy fuel taxes will price U.S. goods out of the marketplace.

Who says? Some business groups, some labor unions.

Rebuttal: This argument assumes a static economy, sans adaptation and innovation. In reality, increased energy taxes will shrink the trade deficit (by cutting both volumes and pre-tax prices of foreign oil), while reduced reliance on oil imports will make it harder to justify military expenditures and activities on grounds of protecting foreign supplies. The higher prices will also spark innovation in clean, efficient technologies better suited for world markets than, say, supersized automobiles. Finally, taxing energy will create parity with our traditional competitors -- the EU and Japan -- while encouraging like-minded actions in the emerging powerhouses of India and China.

Myth #7. A carbon cap-and-trade system is as good as a carbon tax, and is far more politically feasible.

Who says? Some "Big Green" groups, business organizations and corporations seeking a less provocative way to put a price on a carbon.

Rebuttal: Click here for CTC's dissection of the differences between a carbon tax and carbon permit-trading (the differences aren't minor). As for political feasibility, the political landscape has changed radically in the year or two since a few prominent environmental lobby groups threw in their lot with cap-and-trade. Public concern over climate is at or close to critical mass, thanks to a host of phenomena from Hurricane Katrina to An Inconvenient Truth. And the Democrats control Congress, affording opportunities to consider carbon tax proposals seriously. Acceding to cap-and-trade may have seemed necessary 18 months ago, but it may now be a case of setting the bar too low.

Myth #8. Americans are too myopic and distrustful, and our politics too broken, for meaningful carbon taxation (or tax-shifting) to ever take root here.

Who says: Veterans of failed past efforts to take on entitlements; assorted skeptics and cynics -- including, sometimes, ourselves.

Rebuttal: This is the one myth even we at CTC can't dismiss out of hand. Witness the failure of past fuel-tax efforts, the resistance to fossil-fuel-displacing wind farms in some rural areas, and the persistence of costly tax entitlements like the deductibility of home mortgage interest payments from federal taxes -- each, in its own way, testament to the dictum that "losers cry louder than winners sing," in the words of University of Michigan tax policy expert Joel Slemrod.

Nevertheless, we're betting on a different outcome for carbon taxes. For one thing, poll results are encouraging, with growing numbers of Americans expressing willingness to be taxed or to otherwise pay higher energy prices to combat the climate crisis. And this is before anyone of national stature (with the notable exception of Al Gore) has come out for taxing carbon emissions, and before CTC and other groups have had an opportunity to advance carbon taxing as revenue-neutral tax-shifting rather than a tax hike. Moreover, because the non-climate benefits of carbon taxes are enormous, from reduced dependence on foreign oil to less traffic gridlock, there are many opportunities to broaden the constituency. Finally, unlike 1980 or 1993, when fuel-tax proposals went down to defeat, the stakes this time are high -- frighteningly so. Stiff carbon taxes can't rescue the climate by themselves, but without them a rescue is virtually inconceivable. We're confident the American people will rise to the challenge.