Why the Carbon Tax Would Backfire on America

COMMENTARY Energy Economics

Why the Carbon Tax Would Backfire on America

Jul 30th, 2019 3 min read

Commentary By

Nicolas Loris @NiconomistLoris

Deputy Director, Thomas A. Roe Institute

Laura Williamson

Summer 2019 member of the Young Leaders Program at The Heritage Foundation

Carbon taxes are a cure worse than the alleged disease. dszc/Getty Images

Key Takeaways

Marginal bipartisan support for enacting a new tax on American families and businesses doesn’t make it good policy.  

Approximately 80% of America’s energy needs are met by natural gas, oil, and coal, which means the costs would be economy-wide.

Supporters argue a carbon tax is worth it despite the costs, but it’s not clear it would do much to benefit the climate.

Several members of Congress have floated different carbon tax bills in recent days, some of which have both Democratic and Republican sponsorship

But marginal bipartisan support for enacting a new tax on American families and businesses doesn’t make it good policy.  

Different models and prices have been proposed, but they all tax activities that emit carbon dioxide on the premise that emissions are responsible for global warming, a cost to society which otherwise isn’t accounted for. They propose to address this “market failure” with a policy that could well lead to economic failure.  

Families would pay more at the meter and the pump. Approximately 80% of America’s energy needs are met by natural gas, oil, and coal, which means the costs would be economy-wide. It would cost more to manufacture, which would drive up the price of manufactured goods. And it would cost more to farm, which would drive up the costs of food. 

Analysts at The Heritage Foundation used the U.S. Energy Administration Information’s energy model to estimate the effects of a carbon tax to reduce carbon dioxide emissions as aggressively as possible between now and 2040. According to the model’s results, a carbon tax would cause

  • A peak employment shortfall of more than 1.4 million jobs.
  • A total income loss of more than $40,000 for a family of four.
  • An aggregate gross domestic product loss of more than $3.9 trillion. 
  • Increases in household electricity expenditures of 12% to 124%.

Even worse, the burden would be heaviest on low-income families who spend a higher portion of their budget on energy costs. Some carbon tax proposals acknowledge this and offer rebates from the tax revenue collected. 

But even if a rebate check compensates low-income families for their higher energy bills, it won’t undo the damage they’ll incur from paying more for groceries, clothes, health care, and everything else they buy because of the increased cost of energy for all those providers. 

Some supporters talk of returning the tax revenue to the people in various ways, but not without taking some kind of cut for their own special interests, whether for green energy projects or new infrastructure. 

Then there’s the bureaucratic nightmare of implementing a new tax. Acknowledging that a carbon tax would harm American businesses and U.S. competitiveness, carbon tax proponents suggest enacting a border adjustment tax for imported goods from countries where no carbon pricing exists. Others propose to eliminate environmental regulations in exchange for a carbon tax. 

Administering border taxes on goods imported from countries without carbon taxes “would be enormously complex, requiring an estimate of the tax-equivalent value of the given policies under examination,” said resident American Enterprise Institute scholar Benjamin Zycher. And the administrative state would be empowered to make decisions micromanaging the economy via tax policy.

Supporters argue a carbon tax is worth it despite the costs, but it’s not clear it would do much to benefit the climate.

No doubt, carbon dioxide emissions would decline—if you tax something, you’ll get less of it. But the impact on global temperatures would be negligible by the end of the century, even if you assume the most catastrophic scenario

It’s also highly unlikely a carbon tax would be faithfully applied to everyone, Zycher pointed out, because various interest groups will influence which businesses are subject to the tax and other countries are likely to implement alternative policies that subsidize solar and wind energy instead of taxing carbon. 

Carbon taxes are a cure worse than the alleged disease: They have a minimal impact on emissions and will do next to nothing to affect climate change. In the end, they hurt the very citizens they are intended to help.

This piece originally appeared in The Daily Signal