With a Carbon Tax, U.S. Could Surpass Paris Climate Goals

by Earth Institute | July 17, 2018

As federal deficits approach record highs and lawmakers and presidential candidates look toward post-2020 federal climate policy, carbon taxes have been gaining attention from Republicans and Democrats alike.

In light of this development, the Center on Global Energy Policy (CGEP) at Columbia’s School of International and Public Affairs released a series of four reports today that analyze the economic, energy, and environmental implications of federal carbon taxes. These reports are part of CGEP’s Carbon Tax Research Initiative which launched earlier this year.

The studies are the first to analyze carbon taxes in light of 2017 federal tax reform, which changes the landscape for any major future federal tax policy.

To produce these independent, peer-reviewed reports, Columbia collaborated with leading independent think tanks and institutions, including the Rhodium Group, the Urban-Brookings Tax Policy Center, and Rice University’s Baker Institute for Public Policy. Each uses state-of-the-art modeling tools to take a deep dive into the implications of an upstream carbon tax that starts at $14, $50, and $73 a ton through a hypothetical first decade of policy implementation (2020s).

Among the reports’ findings:

Government revenue over the three scenarios increases about $60 billion, $180 billion, and $250 billion per year. (For context, the US corporate income tax raised about $300 billion in 2017.)

The carbon tax rapidly accelerates the shift away from coal and toward renewable electricity, but the effects on the production and consumption of oil and natural gas are relatively small. The carbon tax drives a 28 to 84 percent reduction in US coal production by 2030 compared to current policy.

Under a $50/ton scenario, emissions fall to 39–46 percent below 2005 levels, significantly outpacing the U.S. commitment to the Paris Agreement (26 to 28 percent reductions in net GHG emissions by 2025. The analysis shows that the United States is unlikely to meet the U.S. target under current policy).

The most important driver of whether a carbon tax will be progressive or regressive is how revenue is used.

Similarly, macroeconomic impacts of a carbon tax also depend on how the revenue is used. Across all scenarios, annual effects of a carbon tax on US GDP are small, and can be positive or negative, without counting economic benefits of emissions reductions.

The economic impacts of the carbon tax vary by age—young and future generations fare best under most carbon tax designs.

Roughly 80 percent of the emissions reductions caused by the carbon tax are in the power sector, while transportation sector emissions are only 2 percent lower in 2030 in the central tax scenario compared to the current policy scenario.

The four-part series is available here:

Additional information on the Carbon Tax Research Initiative is available here.