Updated Jul 17, 2018 - Energy & Environment

Carbon taxes could be created without harming economy: studies

Carbon taxes can be constructed in a way that substantially speeds greenhouse gas cuts without hamstringing the economy or regressive financial effects, according to joint research in four papers published Tuesday.

Reality check: Experts have been building a body of ready analyses and policy designs if a political window opens in the future. But, the current political reality is that the House is prepared to vote on a GOP-led, nonbinding resolution this week that says taxing CO2 would hurt the economy — and it's expected to pass easily.

The details: The analyses are released via Columbia University's Center on Global Energy Policy in conjunction with the Urban-Brookings Tax Policy Center, the Rhodium Group consultancy, and Rice University's Baker Institute for Public Policy.

What they found: The papers model escalating taxes beginning at $14, $50, and $73 per ton of emissions starting in 2020. A few topline findings...

  • Money: Federal revenues would in the first decade would increase by $60 billion–$250 billion annually.
  • Emissions: The mid-range proposal ($50-per-ton) would cut emissions by 39%–46% below 2005 levels by 2030, a much deeper cut than the U.S. commitment under the Paris agreement (which the Trump administration plans to abandon anyway).
  • Fuel sources: The largest impact by far is in the power sector, greatly speeding up the shift away from coal and toward renewables, with a much lesser effect on oil's dominance in transportation.
  • Costs: The proposals would boost energy prices to varying degrees. Under the $50 scenario, retail power costs would average 12.9 cents per kilowatt hour in 2030, compared to 10.6 cents absent the policy. Average gasoline prices would be 60 cents per gallon higher by then.
  • Design: A series of options can mitigate the financial effects on consumers, including payroll tax cuts and rebate checks.

One level deeper: "If the revenues are rebated to households equally, the combination of tax policies could be progressive, with lower income households receiving rebates that significantly exceed what they pay in additional taxes," the summary notes.

Why $50 matters: It's not too far off the proposal from the Climate Leadership Council, a group backed by some former GOP officials like James Baker, which would start at $40 per ton while giving the proceeds to the public through rebates.

  • Meanwhile, liberal Sens. Sheldon Whitehouse and Brian Schatz have floated a bill that starts at $50 per ton.
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