- Environmental Taxation and the Double Dividend (Lawrence Goulder, Stanford, 1994). Seminal articulation of the dual benefits of replacing taxes on income and work with taxes to discourage pollution.
- When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets (Ian Parry, Roberton Williams & Lawrence Goulder, Resources for the Future, 1998). General equilibrium modeling demonstrates economic efficiency benefits of pollution taxes with revenue “recycling” to reduce marginal rates of pre-existing distortionary taxes.
- Clean Energy And Jobs: A comprehensive approach to climate change and energy policy (James P. Barrett & J. Andrew Hoerner, Economic Policy Institute, 2002).
- A Proposal for a U.S. Carbon Tax Swap (Gilbert Metcalf, Brookings, 2007).
- Caps vs. Taxes (Kevin Hassett, Steven Hayward, Ken Green, AEI, 2007).
- U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law, Joost Pauwelyn, Duke U., 2007). WTO rules permit “border tax adjustments” (import tariffs) to harmonize domestic carbon taxation. [Updated, March 2012.]
- Smart Taxes: An Open Invitation to Join the Pigou Club (Greg Mankiw, Harvard, 2008).
- Policy Options for Reducing CO2 Emissions (Congressional Budget Office, 2008). “[T]he net benefits (benefits minus costs) of a [carbon] tax could be roughly five times greater than the net benefits of an inflexible cap.”
- CO2 Price Volatility: Consequences and Cures (Brattle Group, January 2009).
On Modeling and Interpreting the Economics of Catastrophic Climate Change (Martin Weitzman, Harvard, 2009).
- Addressing Climate Change Without Impairing the US Economy (Robert Shapiro, US Climate Task Force, 2008).
- On The Merits of A Carbon Tax (Ted Gayer, Brookings, Testimony to Senate Env’t & Nat’l Res. Committee, 2009).
- The Design of a Carbon Tax (Gilbert Metcalf & David Weisbach, Harvard Envt’l Law Rev, 2009).
- Carbon taxation – a forgotten climate policy tool? (Global Utmaning [Sweden], 2009)
Carbon Tax and Greenhouse Gas Control: Options for Congress, (Jonathan Ramseur & Larry Parker, Congressional Research Service, 2009). Options for design and implementation of U.S. carbon tax to match emissions reductions from Lieberman-Warner (cap & trade) bill without price volatility, speculation and offsets.
- How Climate Policy Could Address Fiscal Shortfalls (Adele Morris & Ted Gayer, Brookings, 2010).
- A Balanced Plan to Stabilize Public Debt and Promote Economic Growth (William Galston, Brookings & Maya MacGuineas, Committee for a Responsible Federal Budget, 2010). Recommendations include a broad-based carbon tax with proceeds to reduce payroll taxes and for deficit reduction.
Carbon pricing in Washington (Yoram Bauman, Sightline Institute, 2010). Quantitative economic and climate policy “blueprint” for Carbon Washington revenue-neutral carbon tax proposal.
- Moving U.S. Climate Policy Forward: Are Carbon Taxes the Only Good Alternative? (Ian Parry & Roberton Williams, Resources for the Future, 2011).
- Revising the Social Cost of Carbon, (Frank Ackerman & Elizabeth Stanton, E3 Network, 2011).
- Carbon Taxes, An Opportunity for Conservatives (Irwin Stelzer, Hudson Institute, 2011).
- Fiscal Solutions: A Balanced Plan for Fiscal Stability and Economic Growth, Peterson Foundation & American Enterprise Institute, 2011). As part of comprehensive reform, recommends replacing ethanol subsidies and greenhouse gas regulations with a $26/tonne CO2 (and CO2-eq) tax, rising 5.6% annually. (p 25.)
- The Potential Role of a Carbon Tax in U.S. Fiscal Reform (Brookings, 2012)
- Offsetting a Carbon Tax’s Costs on Low-Income Households (CBO, 2012)
- Considering a U.S. Carbon Tax: Frequently Asked Questions (Resources for the Future, 2012)
- Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution? (MIT, August 2012)
- It’s Time for a Carbon Tax (Elizabeth Kolbert, The New Yorker, Dec. 10, 2012)
- Fiscal Policy to Mitigate Climate Change (IMF, 2012)
- The Many Benefits of A Carbon Tax (Adele Morris, Brookings, 2013)
Carbon Taxes and Corporate Tax Reform (Donald Marron & Eric Toder, Urban-Brookings Tax Policy Center, 2013)
- Reaffirming the Case for a Briskly Rising Carbon Tax (James Handley, Carbon Tax Center, June 2013)
Changing Climate for Carbon Taxes: Who’s Afraid of the WTO? (Jennifer Hillman, German Marshall Fund, Climate Advisors, American Action Forum, July 2013).
- Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality? (Martin Weitzman, Harvard Project on Climate Agreements, January 2014).
- Design of Economic Instruments for Reducing U.S. Carbon Emissions, (Carbon Tax Center, submitted to Senate Finance Committee, January 2014).
- Tax Policy Issues in Designing a Carbon Tax (Donald B. Marron and Eric J. Toder, Urban-Brookings Tax Policy Center, May 2014).
A Carbon Tax in Broader U.S. Fiscal Reform: Design and Distributional Issues, Adele Morris (Brookings) and Aparna Mathur (American Enterprise Institute), C2ES, May 2014.
Temperature impacts on economic growth warrant stringent mitigation policy, Frances C. Moore, Delavane B. Diaz (Nature Climate Change, January 2015). When climate change is allowed to affect economic growth in the DICE Integrated Assessment Model, its estimate of the Social Cost of Carbon may exceed $220/T CO2.
- How to Adopt a Winning Carbon Price — Top Ten Takeaways from Interviews with the Architects of British Columbia’s Carbon Tax (Clean Energy Canada, 2015).
Putting a Price on Carbon: A Handbook for U.S. Policymakers, Kevin Kennedy, Michael Obeiter, Noah Kaufman (World Resources Institute, April 2015).
Energy Subsidy Reform, Lessons and Implications (International Monetary Fund, May 2015).
Taxing Carbon: What, Why, and How, by Donald Marron, Eric Toder, and Lydia Austin, (Tax Policy Center, June 2015).
Global Carbon Pricing: We Will If You Will (September 2015). E-book compilation of eight papers by David J. C. MacKay, Richard Cooper, Joseph Stiglitz, William Nordhaus, Martin L. Weitzman, Christian Gollier & Jean Tirole, Stéphane Dion & Éloi Laurent, Peter Cramton, Axel Ockenfels & Steven Stoft. The authors, from a variety of viewpoints and disciplines, conclude that negotiating an explicit global price on carbon pollution would help unlock global climate negotiations by aligning national self-interest with the global goal of rapidly reducing greenhouse gas emissions.
After Paris: Fiscal, Macroeconomic, and Financial Implications of Climate Change (IMF discussion draft, January 2016).
Frequently Asked Questions and Answers about Carbon Taxes and the Carbon Tax Center
1. Who/what is the Carbon Tax Center?
CTC is a 501(c)3 non-profit that since 2007 has given voice to Americans who believe that taxing carbon pollution — the primary greenhouse gas — is imperative to reduce global warming. Co-founders Charles Komanoff and Dan Rosenblum brought to CTC a combined six decades of experience in economics, law, public policy and social change. CTC educates and informs policymakers, journalists and other opinion leaders, grassroots activists and the public about the need for significant, rising and equitable taxes on carbon emissions from fossil fuels. Though Dan has moved on, Charles remains as CTC director.
2. Why are carbon taxes essential?
The transformation of our fossil fuels-based energy system to reliance on energy efficiency, renewable energy and sustainable fuels won’t happen fast enough without carbon fees or taxes sending the appropriate persistent and rising price signals into every corner of the economy and every aspect of life. Or, in the words of Brookings economist (and carbon tax supporter) Adele Morris, “As long as burning dirt (i.e., fossil fuels) is the cheapest form of energy, that’s what we’ll do.” Conversely, raising fossil fuel prices with carbon taxes will motivate switches to clean energy across the economy by making it more economically rewarding to move to non-carbon fuels and energy efficiency.
3. How serious is the climate crisis?
We agree with pioneering climate-scientist James Hansen that the continued buildup of greenhouse gases in Earth’s atmosphere has begun causing cataclysmic change in our planet’s climate and ecology. Denialists’ claims that global temperatures are receding are blatantly false; new records are set almost monthly, and both 2016 and 2015 smashed prior records (see graphic). Nor just sweltering summers but forest fires and die-off, drowned coastal regions, decimated food chains, spreading disease, economic devastation, warfare and massive migrations of humans and other species are all virtual certainties in the lifetimes of many people now living, unless the world makes sharp cuts in greenhouse gases.
4. How much of greenhouse gas emissions are from fossil fuel burning?
For the U.S., carbon dioxide released by burning oil, coal and natural gas makes up 82% of total greenhouse gas emissions (weighted by climate-change impact), according to the U.S. Department of Energy. The remainder is methane (9%, from landfills, coal mines, oil and gas operations and agriculture); nitrous oxide (5%, from burning fossil fuels and from certain fertilizers); refrigerants and other “engineered” chemicals (2%); and carbon dioxide from other sources (2%).
5. What is the U.S. share of world greenhouse gas emissions from fossil fuel burning?
The U.S. slipped behind China as the world’s largest emitter of carbon dioxide, the principal greenhouse gas, a decade ago. Nevertheless, the U.S. still accounts for nearly 20% of the world’s CO2 emissions from fuel-burning. Because Americans are less than 5% of world population, per capita we emit almost 5 times as much CO2 as the average non-American. The historical disparity is even greater, and because CO2 molecules persist in Earth’s atmosphere for around a century, our past emissions are disproportionately responsible for climate change now and in the future. On any moral calculus, the United States bears a heavy responsibility to cut emissions massively and rapidly.
6. Why does CTC support carbon tax shifting?
The potential carbon tax burden on low and moderate-income households can be averted by returning the tax proceeds to Americans. This can be done through periodic pro rata “dividends” or by reducing the tax burden of regressive taxes such as the federal payroll tax or state sales taxes (depending upon whether the tax is imposed at the federal or state level). Shifting the tax burden to pollution and pollution-generating activities will create powerful incentives to use less energy and emit less CO2 while simultaneously promoting tax equity and minimizing the impact of the carbon tax on those with lower incomes.
7. Why should we CTC support both carbon taxes and energy-efficiency standards?
Energy standards have improved energy performance by forcing product design changes in critical sectors such as major appliances and U.S.-made automobiles, as we noted in one of our most popular blog posts. Standard-setting takes a long time, however. Moreover, standards tend to be static whereas energy use is ever-evolving. Combining carbon taxes with efficiency standards will achieve far more than the latter alone by motivating manufacturers and builders to proactively maximize energy efficiency while giving consumers ongoing incentives to make cost-effective choices valuing efficiency in shopping, traveling and purchase of homes and other durables.
8. Why not just subsidize renewables?
Federal payments to wind generators for each kWh produced, accelerated depreciation allowances for solar photovoltaic cells, and state “Renewable Portfolio Standards” mandating purchases use of renewable power have helped jump-start these sectors, bringing down costs and establishing renewables as culturally viable and politically salient. But energy efficiency is just as vital. Unfortunately, subsidizing efficiency is impracticable due to the distributed and dispersed nature of energy efficiency investments and choices. Moreover, a carbon tax will help wind and solar power speed their rise from their 3% niche (as of 2017, when wind + solar accounted for 8% of U.S. electricity) to a majority share of energy. (For a full exploration of these issues, read CTC’s Jan. 2014 Comments to the Senate Finance Committee.)
9. Why not just withdraw fossil fuel subsidies?
Of course we should zero out tax breaks, lease loopholes and other giveaways to the fossil fuel industry, along with the bloated and unsupportable ethanol mandate. But the impact on U.S. fossil fuel use would barely be noticeable. Authoritative sources such as EarthTrack have placed the fossil fuel industry’s tax and fiscal subsidies at around $25 billion a year, a figure that pales beside the roughly $1,000 billion (one trillion dollars) paid annually for coal, oil and natural gas burned in the U.S. Do the math: withdrawing those subsidies would lead to at most a 2-3 percent rise in the market prices of fossil fuels — scant incentive to reduce their use and concomitant emissions of CO2.
10. Why not just let market forces lift fuel prices?
Market signals are too volatile in the short term and too weak in the long term to provide the incentives needed to rewire the U.S. for energy efficiency and renewables. Moreover, high prices alone, whether due to geological depletion or plain old gouging, line the pockets (and magnify the political power) of the energy industry and ravage the poor and middle class. They’re even counter-productive, since high prices, absent a carbon tax, unleash production of CO2-intensive “extreme” fossil fuels from tar sands, mountaintop detonation, and fracking. Only carbon taxes combine market correctives with protecting American families and our environment.
11. Why not let technology remove carbon pollution from coal-fired smokestacks?
Rather than take positions on competing technologies, CTC works to remedy the market failure that allows burning of gas, oil and coal without charging for the resultant climate damage. Thus, we neither favor nor oppose so-called “clean coal,” i.e., combustion of coal with carbon dioxide captured and sequestered from the atmosphere; though we’re not bullish on Carbon Capture and Storage in light of the considerable (~30-40%) oversizing of generating capacity and coal throughput required to process flue gas to safely remove 90% or more of the CO2. In any event, every serious carbon tax proposal has a provision to credit working CCS systems via a rebate or netback for CO2 demonstrably sequestered from release to the atmosphere.
12. Will a carbon tax lessen U.S. oil dependence?
You bet. Petroleum products account for around 45% of U.S. CO2 emissions from burning fuels (coal and natural gas are responsible for roughly 25% and 30%, respectively), so a carbon tax stiff enough to cut down heavily on CO2 will necessarily put a big dent in oil consumption. According to our own modeling, Rep. Larson’s bill would, by its tenth year in effect, reduce U.S. use of petroleum by nearly 20% below “business-as-usual” levels (i.e., without a carbon tax or equivalent price on carbon emissions).
13. Would taxing carbon be regressive?
Any flat tax is regressive, but the regressivity of a tax on carbon pollution could and should be minimized or even reversed by making sure a fair share of tax revenues flow to the less affluent. The key is that wealthier households use more energy, on average – they drive and fly more, have bigger (and sometimes multiple) houses, and buy more stuff that requires energy to manufacture and use. A majority of carbon tax revenues will come from families of above-average means, which creates a basis for “progressive tax-shifting”: transferring a portion of the tax burden from regressive taxes such as the payroll tax (at the federal level) and the sales tax (at the state level) onto pollution and pollution-generating activities. Another progressive approach is to rebate the carbon tax revenues equally to all U.S. residents — a national version of the Alaska Permanent Fund, which for decades has annually sent identical checks to all state residents from earnings on investments made with the state’s North Slope oil royalties. Because income and energy consumption are strongly correlated, most poorer households will get more back in rebates or tax savings than they pay out in the carbon tax. The Citizens Climate Lobby is the leading proponent of this “fee-and-dividend” approach.
14. How can impacts on poor families be lessened?
Impacts of carbon taxes on poor families can be lessened by: 1) progressive tax-shifting as just described; 2) pro-rata distribution of the carbon tax revenues to every U.S. resident (also described above); and/or 3) to the extent necessary, funding programs designed to help poorer households use less energy driving and at home. See Offsetting a Carbon Tax’s Costs on Low-Income Households (Congressional Budget Office, 2012).
15. How much revenue will carbon taxes generate?
A lot, if taxes on carbon pollution rise briskly enough to have the needed climate impacts. Rep. Larson’s bill would start modestly at $15 per ton of CO2. That $15 per ton CO2 tax would bring in $80 billion of revenue, which equates to around $250 per U.S. resident, or $1,000 for a family of four. (Thus, if carbon revenue are distributed as per capita “dividends,” that family receives $1,000. If that family uses less fossil fuel energy than average, their increased costs will be less than $1,000, so they’ll come out ahead.) Successive annual carbon tax increments adding $12.50 per ton will add to the annual revenue stream, though at a declining rate as CO2 emissions fall each year in response to the rising CO2 price. By the end of the tenth year, the annual revenue will be on the order of $440 billion. We estimate that this brisk rise in the cost of CO2 pollution will reduce U.S. emissions dramatically, by about 1/3.
16. How will carbon taxes be administered?
The tax will be levied at the wholesale level of the fuel supply chain, as far upstream as practicable. Electric generators will pay the mandated carbon tax to their coal or natural gas suppliers, who will forward the payment to the government; the generators will pass along the tax to the retail electric utility which in turn will charge it to customers – to the extent that market conditions allow. Similarly for petroleum products (e.g., gasoline, jet fuel, heating oil), with government collecting the tax from refiners or importers of refined petroleum products, and the taxes passed on to oil wholesalers and eventually to retail customers. This approach will maximize accuracy and incentives and minimize paperwork and leakage.
About 1,200 to 1,500 fossil fuel energy producers will pay carbon taxes. According to Jack Calder of EPA, whose paper “Administration of a U.S. Carbon Tax” forms Chapter 3 of “Implementing a US Carbon Tax: Challenges and Debates,” approximately 150 petroleum refineries, 500 – 800 coal producers (depending on the point of compliance) and about 500 natural gas distributors will be taxed. Gilbert Metcalf and David Weisbach offer more detail in The Design of a Carbon Tax (Harvard Environmental Law Rev, 2009). A January 2017 report from the U.S. Treasury’s Office of Tax Analysis, Methodology for Analyzing a Carbon Tax, is a superb (and mercifully brief, just 28 pages) guide to the nuts and bolts of administering a carbon tax.
17.Will carbon tax “dividends” be subject to federal income taxes?
It is likely that the carbon dividends (periodic payouts to households or individuals under a fee-and-dividend system) will count as taxable income. But the additional federal revenue from the taxes received on the dividend income could be added back to the dividend pool being divvied up and returned to households, thus preserving revenue-neutrality.
It is true that this will add a step or two to the Treasury’s bookkeeping; and that it would alter somewhat the distributive patterns from a pure (untaxed) dividend system. The net effect will probably make fee-and-dividend even more income-progressive, since wealthy individuals and households tend to pay a higher percentage of their gross income as taxes than non-wealthy taxpayers.