A new study conducted by researchers at MIT and the National Renewable Energy Laboratory (NREL) concludes that introducing a carbon tax on fossil fuels could be one way to significantly reduce greenhouse gas emissions. And it seems that such a tax could be introduced that would be fair and non-detrimental to those on low incomes.





There were eleven different research teams taking part in the study, each from different institutions. Using the same policies and starting assumptions, all of the teams carried out the research independent of one another. Upon comparing the results they all agreed that carbon taxes could be extremely effective as long as applied in the correct manner.

The groups considered several different options for the carbon tax and also looked at the revenue each would generate. In coming up with these options they used two different starting values: $25 and $50 per ton. This is the amount that would be charged for every ton of carbon emissions produced. The team also used two varying rates of interest in which to do their calculations: 1% and 5% per year. And lastly, they considered three different ways of dispensing the revenue: a corporate tax break, a tax break for individuals, or an equal rebate to all households.

Unsurprisingly, when looking at fees, the researchers found that those with the highest rates produced the greatest reduction in emissions. But it also showed that even the smallest of taxes could cause sufficient enough reductions in emissions to meet the requirements of the 2015 Paris Agreement. However, the most efficient of all methods to achieve a reduction in greenhouse emissions is to use the collected revenue to reduce taxes on capital on investment income or corporate profits.





Considering how high the current capital tax rates are in the US, it’s likely that any reduction in them is likely to spark a lot of interest. Probably more so than a direct rebate to households or cuts on other taxes. But that is the most regressive option. At the opposite end of the scale, sending equal payments out to every household was highly inefficient, but the least regressive option. Individual tax breaks fell somewhere in the middle. Another option was to combine the act of a tax break for corporations with that of a rebate to low-income families who would be hit the hardest by the tax.

“It’s a sort of obvious solution, to take some chunk of the money and use it to focus on the poorest households, and use the rest to cut taxes. It doesn’t seem like a hard thing,” says John Reilly, MIT Joint Program on the Science and Policy of Global Change Director. “It is important to realize that this study was completed before the tax reform that took effect in January that slashed corporate income tax rates. Given that these tax rates have now been cut, and that those cuts will contribute to a growing deficit, we might better consider the revenue as a contribution to closing the deficit.”

In order to properly assess the impact that different policies would have on the world’s climate, Reilly’s team used an MIT-developed economic model. By combining this with a model developed at NREL showing the nation’s electrical system, the team was able to come up with a much more complex assessment of how these policies would affect any decisions that were to be made by the power producers and distributors.

Results from the study showed indicated that with carbon taxes set at $50 per ton and increased at a rate of 5% per year would lead to a reduction in the total greenhouse gas emission in the US by as much as 63%, confirms Reilly. “So, that’s in line with what people are talking about, which is needing a 50 percent reduction by 2050, globally and getting to net zero beyond that.”





Lead author of the study and former MIT postdoc, Justin Caron says: “By taxing carbon, we will collect a lot of money that can be used to supplant other taxes that we like less. Why tax something that we like?” While the actual Paris agreements varied in the goals set by different nations, even the lowest of the policies studied would be sufficient to meet the US requirements. While many experts argue that the Paris Agreement alone is not enough to reverse the damage caused by global climate change, it’s certainly a step in the right direction.

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