Economists have argued for almost one-hundred years that carbon taxes can address the problem of pollution. And the issue has gained increasing urgency with the threat of climate change. In the last 25 years there has been a move from theory to practice. As of early 2018, more than 25 national or subnational carbon tax systems had been implemented or were scheduled to be implemented around the world. New evidence is emerging on the way they work and their effects on greenhouse emissions and on the economy in general. What can we learn from international experience?

What this Means:

International experience with carbon taxes is beginning to offer practical lessons about their implementation and evidence about their impact. In particular, British Columbia provides an example of structuring a carbon tax plan that lowers greenhouse emissions and, at the same time, is revenue neutral, fair and promotes economic activity. Some could argue that the British Columbia case is not relevant since this is relatively small and simple region compared to the U.S. economy. However, as I argue in this EconoFact post, while it is true that carbon taxes will impose costs on our economy, such costs would be small for a large and diversified economy like the U.S. It also is worth noting that a domestic carbon tax alone will not curb greenhouse emissions. But this is not an argument for inaction: 27 other national and subnational authorities from both developed and developing countries, have already taken action, some of them for almost 30 years. Finally, I think it is fundamental to invest part of the revenues generated by carbon taxes in R&D (as the Swiss have done) so that new inventions (like advanced battery storage, carbon capture and storage, and inexpensive, safe and modular nuclear power) and production processes are developed and successfully introduced into the market. And as I’ve argued elsewhere, strong political leadership is the last ingredient required to make all these changes that will have a positive impact on many generations to come.

Editor's note: Gilbert Metcalf is the John DiBiaggio Professor of Citizenship and Public Service and Professor of Economics at Tufts University and author of "Paying for Pollution: Why a Carbon Tax is Good for America" (Oxford 2019). This post was co-written with freelance writer Beatriz Yemail based on Metcalf, Gilbert E. 2019. “On the Economics of a Carbon Tax for the United States” BPEA Conference Draft, Spring.