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This page, featuring authors, writers and “pundits” (newspaper and magazine columnists, principally), is one of half-a-dozen compiling expressions of support for carbon taxes (or more targeted taxes, e.g., on gasoline) by notable individuals and organizations. To access other pages with different supporter categories, click on the Progress link on the navigation bar and move to the desired category.

New York Times columnists

Many of the Times’ regular editorial columnists have supported a carbon tax. See Writers & Pundits section of our Archived Supporters page for pro-carbon tax expressions by former Times columnists.

David Brooks

“Raise taxes on carbon emissions,” urged The Times’ most right-leaning columnist, on Nov. 30, 2006 (Waiting To Be Wooed). Although Brooks favored using the tax revenues to make tax cuts on dividends and capital gains permanent, a stance at odds with CTC’s progressive-tax-shift position, he at least grasped the need to reflect climate-change costs in fuel prices.

In 2009, Brooks wrote:

A crusade for economic self-restraint would have to rearrange the current alliances and embrace policies like energy taxes and spending cuts that are now deemed politically impossible. But this sort of moral revival is what the country actually needs.(The Next Culture War, Sept. 29, 2009, emphasis added).

In a commentary on the 2012 State of the Union address, Brooks chided President Obama for ignoring the Peterson Foundation’s call to “tax fossil fuels to spur innovation,” among other recommendations. (Hope, But Not Much Change, Jan. 27, 2012).

In a critique of clean-tech subsidies during the 2012 presidential campaign, Brooks wrote:

Global warming is still real. Green technology is still important. Personally, I’d support a carbon tax to give it a boost. But he who lives by the subsidy dies by the subsidy. Government planners should not be betting on what technologies will develop fastest. They should certainly not be betting on individual companies.(A Sad Green Story, Oct. 18, 2012, emphasis added.)

Paul Krugman

The Times influential economist-columnist (and economics Nobel laureate) has, curiously, shied from carbon-tax advocacy. During the run-up to the Dec. 2009 Copenhagen COP-15 session, Krugman attacked climatologist and cap-and-trade opponent James Hansen for allegedly failing to grasp that a robust permit-based emissions-control system would lead to the rising carbon price Hansen advocated. (Krugman badly underestimated Hansen’s economics acumen, in our view, as can be seen by reading any of Hansen’s pronouncements gathered on the Scientists page of this Web site or by viewing Hansen’s presentation at the Nov. 2010 Wesleyan Univ. Pricing Carbon conference.) Nevertheless, in a July, 2011 post on his Conscience of a Liberal blog, Krugman came out swinging for putting a price on carbon emissions:

Opponents of a strong policy to curb greenhouse gases tend to be fervent believers in the magic of market economies. Yet somehow their faith goes away when it comes to environmental issues. If you seriously believe in markets, you should believe that given the right incentives — namely, putting a price on emissions, through either a tax or a tradable permit scheme — the economy will find lots of ways to emit less. You should definitely not believe, as anti-environmentalists claim, that the result would be economic disaster. (The Answer, My Friend, July 19, 2011)

Thomas Friedman

His has been the most influential and persistent journalistic voice for breaking U.S. oil dependence by taxing gasoline and for addressing climate change with a carbon tax. His most recent column, The Market and Mother Nature, on Jan. 9, 2013, placed a carbon tax in the politically viable context of fiscal and tax reform:

A carbon tax would reinforce and make both strategies [deficit reduction and climate stabilization] easier. According to a September 2012 study by the Congressional Research Service, a small carbon tax of $20 per ton — escalating by 5.6 percent annually — could cut the projected 10-year deficit by roughly 50 percent (from $2.3 trillion down to $1.1 trillion).

Although a carbon tax needs to grow far faster than CRS’s hypothetical tax — which would take 13 years to double to just $40/ton — Friedman at least shows no signs of backing off his long-time carbon tax advocacy.

Friedman’s Sept. 14, 2011 column in this vein, Is It Weird Enough Yet?, was classic. Friedman set the table:

[H]ere is the Texas governor rejecting the science of climate change while his own state is on fire — after the worst droughts on record have propelled wildfires to devour an area the size of Connecticut. As a statement by the Texas Forest Service said last week: “No one on the face of this earth has ever fought fires in these extreme conditions.”

He continued:

There is only one effective, sustainable way to produce “green jobs,” and that is with a fixed, durable, long-term price signal that raises the price of dirty fuels and thereby creates sustained consumer demand for, and sustained private sector investment in, renewables. Without a carbon tax or gasoline tax or cap-and-trade system that makes renewable energies competitive with dirty fuels, while they achieve scale and move down the cost curve, green jobs will remain a hobby.

and:

We need revenue to balance the budget. We need sustainable clean-tech jobs. We need less dependence on Mideast oil. And we need to take steps to mitigate climate change — just in case Governor Perry is wrong. The easiest way to do all of this at once is with a gasoline tax or price on carbon. Would you rather cut Social Security and Medicare or pay a little more per gallon of gas and make the country stronger, safer and healthier? It still amazes me that our politicians have the courage to send our citizens to war but not to ask the public that question.

Similarly, but more succinctly, is this passage from Friedman’s Nov. 28, 2010 column, Got to Get This Right:

We need to raise gasoline and carbon taxes to discourage their use and drive the creation of a new clean energy industry, while we cut payroll and corporate taxes to encourage employment and domestic investment.

The same sentiments appeared most recently on Aug. 5, 2012, under virtually the same headline, Get It Right On Gas:

[W]e also need to get the economics right. We’ll need more tax revenue to reach a budget deal in January. Why not a carbon tax that raises enough money to help pay down the deficit and lower both personal income taxes and corporate taxes — and ensures that renewables remain competitive with natural gas?

Friedman was both more expansive and more eloquent in The Price Is Not Right (April 1, 2009):

[I]f I had my wish, the leaders of the world’s 20 top economies would commit themselves to a new standard of accounting — call it “Market to Mother Nature” accounting. Why? Because it’s now obvious that the reason we’re experiencing a simultaneous meltdown in the financial system and the climate system is because we have been mispricing risk in both arenas — producing a huge excess of both toxic assets and toxic air that now threatens the stability of the whole planet.

Just as A.I.G. sold insurance derivatives at prices that did not reflect the real costs and the real risks of massive defaults (for which we the taxpayers ended up paying the difference), oil companies, coal companies and electric utilities today are selling energy products at prices that do not reflect the real costs to the environment and real risks of disruptive climate change (so future taxpayers will end up paying the difference).

Whenever products are mispriced and do not reflect the real costs and risks associated with their usage, people go to excess. And that is exactly what happened in the financial marketplace and in the energy/environmental marketplace during the credit bubble.

And our biggest energy companies, utilities and auto companies became dependent on cheap hydrocarbons that spin off climate-changing greenhouse gases, and we clearly have not forced them, through a carbon tax, to price in the true risks and costs to society from these climate-changing fuels.

“Destructive creation” has wounded both the Market and Mother Nature. Smart regulation and carbon taxation can heal both.

One week later, in Show Us the Ball (April 8, 2009), Friedman singled out Rep. John Larson’s carbon tax bill, “America’s Energy Security Trust Fund and Security Act, for praise:

Since the opponents of cap-and-trade are going to pillory it as a tax anyway, why not go for the real thing — a simple, transparent, economy-wide carbon tax?

Representative John B. Larson, chairman of the House Democratic Caucus, has circulated a draft bill that would impose “a per-unit tax on the carbon-dioxide content of fossil fuels, beginning at a rate of $15 per metric ton of CO2 and increasing by $10 each year.” The bill sets a goal, rather than a cap, on emissions at 80 percent below 2005 levels by 2050, and if the goal for the first five years is not met, the tax automatically increases by an additional $5 per metric ton. The bill implements a fee on carbon-intensive imports, as well, to press China to follow suit. Larson would use most of the income to reduce people’s payroll taxes: We tax your carbon sins and un-tax your payroll wins.

People get that — and simplicity matters. Americans will be willing to pay a tax for their children to be less threatened, breathe cleaner air and live in a more sustainable world with a stronger America. They are much less likely to support a firm in London trading offsets from an electric bill in Boston with a derivatives firm in New York in order to help fund an aluminum smelter in Beijing, which is what cap-and-trade is all about. People won’t support what they can’t explain.

We also count a dozen columns urging gasoline and/or carbon taxation in 2006 alone, including Who’s Afraid of a Gas Tax? (“Americans not only know that our oil addiction is really bad for us, but they would be willing to accept a gasoline tax if some leader would just frame the stakes for the country the right way,” March 1, 2006). Friedman subsequently broadened his call to “a gasoline or carbon tax”: And The Color of the Year Is … (“You have to make sure that green energy sources … can be delivered as cheaply as oil, gas and dirty coal. That will require a gasoline or carbon tax to keep the price of fossil fuels up so investors in green-tech will not get undercut while they drive innovation forward and prices down,” Dec. 22, 2006).

Friedman kept the pressure on in 2007, with The First Energy President (“It means asking Americans to do some hard things [including] accepting a gasoline or carbon tax,” Jan. 5), and (A Warning From the Garden, Jan. 19):

I don’t care whether it is a federal gasoline tax, carbon tax, B.T.U. tax or cap-and-trade system, power utilities, factories and car owners have to be required to pay the real and full cost to society of the carbon they put into the atmosphere. And higher costs for fossil fuels make more costly clean alternatives more competitive… And prices matter. They drive more and cleaner energy choices. So when the president unveils his energy proposals, if they don’t call for higher efficiency standards and higher prices for fossil fuels — take your socks off yourself. It’s going to get hot around here.

In a 9,000-word cover story in the Times Sunday Magazine in 2007, Friedman stated his preference for a carbon tax over a cap-and-trade system:

The market alone won’t work. Government’s job is to set high standards, let the market reach them and then raise the standards more. That’s how you get scale innovation at the China price. Government can do this by imposing steadily rising efficiency standards for buildings and appliances and by stipulating that utilities generate a certain amount of electricity from renewables — like wind or solar. Or it can impose steadily rising mileage standards for cars or a steadily tightening cap-and-trade system for the amount of CO2 any factory or power plant can emit. Or it can offer loan guarantees and fast-track licensing for anyone who wants to build a nuclear plant. Or — my preference and the simplest option — it can impose a carbon tax that will stimulate the market to move away from fuels that emit high levels of CO2 and invest in those that don’t. Ideally, it will do all of these things. But whichever options we choose, they will only work if they are transparent, simple and long-term — with zero fudging allowed and with regulatory oversight and stiff financial penalties for violators. The Power of Green, April 15, 2007

Friedman reiterated his desire for a carbon tax later in 2007, while criticizing the carbon offsets fad:

[W]hen you suggest a carbon tax or a higher gasoline tax — initiatives that would redirect resources and change habits at the scale actually needed to impact global warming — what is the first thing you hear in Congress? “Impossible — you can’t use the T-word.” A revolution without sacrifice where everyone is a winner? There’s no such thing. Live Bad, Go Green, July 8, 2007.

On May 21, 2008, Friedman opined:

It baffles me that President Bush would rather go to Saudi Arabia twice in four months and beg the Saudi king for an oil price break than ask the American people to drive 55 miles an hour, buy more fuel-efficient cars or accept a carbon tax or gasoline tax that might actually help free us from what he called our “addiction to oil.” Imbalances of Power.

Eight days later, on May 29, 2008, Friedman argued for a “price floor” to “guarantee people a high-price of gasoline – forever.” As Friedman stated:

The message going forward to every car buyer and carmaker would be this: The price of gasoline is never going back down. Therefore, if you buy a big gas guzzler today, you are locking yourself into perpetually high gasoline bills. You are buying a pig that will eat you out of house and home. At the same time, if you, a manufacturer, continue building fleets of nonhybrid gas guzzlers, you are condemning yourself, your employees and shareholders to oblivion. Truth or Consequences.

Friedman’s Dec. 7, 2008 column, The Real Generation X, contained possibly his most full-throated call yet for a carbon tax (emphases added):

It makes no sense to spend money on green infrastructure — or a bailout of Detroit aimed at stimulating production of more fuel-efficient cars — if it is not combined with a tax on carbon that would actually change consumer buying behavior.

Many people will tell Mr. Obama that taxing carbon or gasoline now is a “nonstarter.” Wrong. It is the only starter. It is the game-changer. If you want to know where postponing it has gotten us, visit Detroit. No carbon tax or increased gasoline tax meant that every time the price of gasoline went down to $1 or $2 a gallon, consumers went back to buying gas guzzlers. And Detroit just fed their addictions — so it never committed to a real energy-efficiency retooling of its fleet. R.I.P.

If Mr. Obama is going to oversee a successful infrastructure stimulus, then it has to include not only a tax on carbon — make it revenue-neutral and rebate it all by reducing payroll taxes — but also new standards that gradually require utilities and home builders in states that receive money to build dramatically more energy-efficient power plants, commercial buildings and homes. This, too, would create whole new industries.

Friedman followed that up on Dec. 28 with Win, Win, Win, Win, Win …:

I believe the second biggest decision Barack Obama has to make — the first is deciding the size of the stimulus — is whether to increase the federal gasoline tax or impose an economy-wide carbon tax. Best I can tell, the Obama team has no intention of doing either at this time… But I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal — i.e., a tax — and there are no effective ones. (Toughening energy-effiency regulations alone won’t do it.) Without a higher gas tax or carbon tax, Obama will lack the leverage to drive critical pieces of his foreign and domestic agendas… The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach.

Nicholas Kristof

His Hurricane Sandy cri de coeur, Will Climate Get Some Respect Now?, brilliantly connects the storm’s destructive ferocity to climate change, citing a warmer ocean, rising seas, more moist atmosphere, and the possibility that melting sea ice in the Arctic abetted the unusual atmospheric pattern that kept Sandy from moving back out to sea. His column concluded:

[W]e may need to invest in cleaner energy, impose a carbon tax or other curbs on greenhouse gases, and, above all, rethink how we can reduce the toll of a changing climate. (Oct. 31, 2012)

Here’s a Kristof sampler from prior years: Extended Forecast: Bloodshed (April 12, 2008):

[T]he United States’ reluctance to confront  climate change in a serious way — like a carbon tax to replace the payroll tax, coupled with global leadership on the issue –­ [is] as unjust as it is unfortunate.” In Search of Cheney’s ‘Virtue’ (“The best way to encourage [widespread implementation of energy efficiency] would be to impose a carbon tax, although a cap-and-trade system is a reasonable backup.” Aug. 20, 2007). Our Gas Guzzlers, Their Lives (“All this [climate-exacerbated drought and famine in Africa] makes it utterly reckless that we fail to institute a carbon tax or at least a cap-and-trade system for emissions.” June 28, 2007). Scandal Below the Surface (“We know what is needed: a carbon tax or cap-and-trade system, a post-Kyoto accord on emissions cutbacks, and major research on alternative energy sources,” Oct. 31, 2006). A Paradise Drowning (“We must encourage conservation and fuel efficiency, support alternative forms of energy like wind, solar and biofuels, and … adopt a carbon tax… Jan. 8, 2006).

Gail Collins

When op-ed columnist Collins turned her attention to climate change, in early 2013, she zipped off some impressive lines:

There was a time … when the Republican Party was a hotbed of environmental worrywarts. The last big clean air act of the Bush I administration passed the House 401 to 21. But no more, no more. You’re not going to get any sympathy for controlling climate change from a group that doesn’t believe the climate is actually changing … It’s sort of ironic. These are the same folks who constantly seed their antideficit speeches with references to our poor, betrayed descendants. (“This is a burden our children and grandchildren will have to bear.”) Don’t you think the children and grandchildren would appreciate being allowed to hang onto the Arctic ice cap?

Collins acknowledged the Obama administration’s tightening of auto and appliance efficiency standards and then got down to business:

But a carbon tax/fee is the key to controlling climate change. That or just letting the next generation worry about whether the Jersey Shore is going to wind up lapping Trenton. (Cooling on Warming, March 27, 2013)

NYT Economic Columnist David Leonhardt (“Economix”)

The simplest idea in economics, I think, is that people respond to the incentives they are given… So if we have decided that we need to use less oil for our own good — which seems to be the case — we need big incentives to change our behavior… A substantial gas tax would be the simplest, with other taxes being cut to keep down the overall burden. Buy A Hybrid, Save A Guzzler, Feb. 8, 2006.

[I]f you put the economic advisers, from both parties, in a room and told them to hammer out solutions to the country’s big economic problems, they would find a lot of common ground. They could agree that doctors and patients need better incentives to choose effective medical care. They would probably hit upon education policies along similar lines, requiring that schools be held more accountable for what their students are, and are not, learning. They might suggest a carbon tax — a favorite idea of [former Bush chief economist Greg] Mankiw — to deal with global warming. The Economists are Writing Our Future, April 18, 2007.

No wonder [with gas now at $4 a gallon] that Americans are changing their driving habits so quickly. With sales plummeting, General Motors said Tuesday that it would stop making pickup trucks and sport utility vehicles at four of its North American plants. The company is also considering selling its Hummer brand, an emblem of the megavehicle. Rick Wagoner, G.M.’s chairman, explained the moves by saying that he thought the shift toward more efficient cars was ‘by and large, permanent.’ The unyielding reality is that price matters, enormously. That’s all you need to know about the car market these days. Big Vehicles Stagger Under the Weight of $4 Gas, June 4, 2008.

Steven Rattner 

NYT Contributing Opinion Writer Rattner made a classic (and, in 2021, somewhat antequated) case for President Biden to “lean more heavily on the private sector to boost his infrastructure plan’s odds of success,” in Biden’s Big Government Should Be Handled With Care, April 9, 2021. It’s unclear if centrists like WV Sen. Joe Manchin or a handful of reputedly climate-concerned Republican Senators like Romney (UT), Murkowski (AS) or Collins (ME) are listening:

It’s criminal that the 18.4-cent federal gasoline tax hasn’t been raised since 1993, especially with oil prices so low. A tax of $43 per ton on carbon would be roughly equivalent to a 38-cents-per-gallon increase in the price of gasoline, leading motorists to cut back on their driving and opt for public transportation. And the proceeds could be rebated to Americans other than the wealthy via income tax credits.

The simplest, most effective and ultimately least expensive way to address the climate problem would be through a tax on greenhouse gas emissions — a carbon tax. Think about how many inefficient programs, how many thousands of pages of regulations and how much waste could be avoided.

Other Newspapers 

See the Writers & Pundits section of our Archived Supporters page for older pro-carbon tax commentary by Washington Post columnists E.J. Dionne, Anne Applebaum and others; Financial Times columnist Clive Crook, San Francisco Chronicle columnist Carolyn Lochhead; and others.

Magazines

See the Writers & Pundits section of our Archived Supporters page for older pro-carbon tax commentary in The New Republic, Atlantic Monthly, The Nation, and other periodicals.

Elizabeth Kolbert, The New Yorker magazine, author, “The Sixth Extinction”

In her article “Rough Forecasts,” (April 14, 2014) Elizabeth Kolbert used the global ban on CFCs to foreground her argument that it is time to stop “standing around and waiting” when dealing with climate change. Specifically, Kolbert argued for a carbon tax and explained:

Economists on both sides of the political spectrum agree that the most efficient way to reduce emissions is to impose a carbon tax. “If you want less of something, every economist will tell you to do the same thing: make it more expensive,” former Mayor Michael Bloomberg observed, in a speech announcing his support for such a tax.

Kolbert’s call for a carbon tax is particularly salient in the last paragraph of her article:

The fact that so much time has been wasted standing around means that the problem of climate change is now much more difficult to deal with than it was when it was first identified. But this only makes the imperative to act that much greater, because, as one set of grim predictions is being borne out, another, even worse set remains to be written.

In an earlier article, “Paying For It,” (December 10, 2012) published in the aftermath of Hurricane Sandy, Kolbert forcefully made the case for a carbon tax both as a way to create the incentives needed to reduce carbon pollution and as a substantial source of revenue, preferable to other kinds of taxes.  She explained how the “polluter pays” principle applies to carbon taxes:

One way to think about global warming is as a vast, planet-wide Pigovian problem. In this case, the man pulls up to a gas pump. He sticks his BP or Sunoco card into the slot, fills up, and drives off. He’s got a full tank; the gas station and the oil company share in the profits. Meanwhile, the carbon that spills out of his tailpipe lingers in the atmosphere, trapping heat and contributing to higher sea levels. As the oceans rise, coastal roads erode, beachfront homes wash away, and, finally, major cities flood. Once again, it’s the public at large that gets left with the bill. The logical, which is to say the fair, way to address this situation would be to make the driver absorb the cost for his slice of the damage. This could be achieved by a new Pigovian tax, on carbon.

“Pigovian” refers to the legendary British economist Alfred Pigou who early in the 20^th Century pioneered the study of “externalities,” with environmental pollution as his prime case.

Noting that “as Washington edges toward the fiscal cliff, it has become obvious to just about everyone, except maybe House Republicans, that Washington needs more revenue,” Kolbert pointed out recent research showing the fiscal benefits of carbon taxes:

The Congressional Research Service reported that, over the next decade, a relatively modest carbon tax could cut the projected federal deficit in half. Such a tax would be imposed not just on gasoline but on all fossil fuels—from the coal used to generate electricity to the diesel used to run tractors—so it would affect the price of nearly everything, including food and manufactured goods. To counter its regressive effects, the tax could be used as a substitute for other, even more regressive taxes, or, alternatively, some of the proceeds could be returned to low-income families as rebates (although, of course, this would cut down on the amount that could go toward deficit reduction).

But she lamented:

One key player who has not embraced the idea is Barack Obama. The White House spokesman, Jay Carney, was asked about the tax last month, en route, as it happens, to visit storm-ravaged areas of New York with the President. “We would never propose a carbon tax, and have no intention of proposing one,” Carney told reporters. This was taken by some to mean that Obama was opposed to the tax and by others to mean just that he was not going to be the one to suggest it. In either case, the White House is making a big mistake. Pigovian taxes are rarely politically popular—something they have in common with virtually all taxes. But, as Obama embarks on his second term, it’s time for him to take some risks. Several countries, including Australia and Sweden, already have a carbon tax. Were the United States to impose one, it would have global significance. It would show that Americans are ready to acknowledge, finally, that we are part of the problem. There is a price to be paid for living as we do, and everyone is going to get stuck with the bill.

Kolbert’s suggestion partially came true at the end of 2015, at the Paris climate conference, when President Obama took the “risk” (albeit in the latter part of his second term) and affirmed that he has “long believed that the most elegant way to drive innovation and to reduce carbon emissions is to put a price on it … This is a classic market failure.” (Obama’s quote may be found at the end of the linked post.)

Others

See the Writers & Pundits section of our Archived Supporters page for older pro-carbon tax commentary by The New Yorker columnist Hendrik Hertzberg, columnist Fareed Zakaria, Newsweek columnist Robert J. Samuelson, 350.org founder and journalist-author Bill McKibben, journalist David Roberts, and others.

This page, featuring public officials, is one of half-a-dozen pages compiling expressions of support for carbon taxes (or more targeted taxes, e.g., on gasoline) by notable individuals and organizations. To access other pages with different supporter categories, click on the Progress link on the navigation bar and move to the desired category.

Biden Cabinet

Janet Yellen, Treasury Secretary-designate:

Carbon pricing is key. All firms across our economy need to pay the price of polluting the planet. It will certainly affect the economics of fracking and coal — the idea is to drive that stuff out of business over time. Maybe it doesn’t sound pleasant to say, but that’s what has to happen. (The 41 Things Biden Should Do First on Climate Change, Bloomberg Green, Nov. 11, 2020)

U.S. Senate

Senator Bernie Sanders (I-VT)

Senator Sanders introduced his Climate Protection and Justice Act last Dec. 9, just prior to the closing of the Paris Climate Summit. We discuss the bill here, but it has been in his presidential campaign that Sen. Sanders has put a carbon pollution tax on the political map, unabashedly championing the idea in the debates and criticizing former Secretary of State Hillary Clinton for not similarly making a carbon tax the centerpiece of her climate program.

 

In June 2016, Grist magazine posted a terrific campaign compendium, Our Favorite Bernie Sanders Moments, noting that Sanders called climate change the greatest threat to our national security and pulled Hillary Clinton to the left on climate and energy. Here are excerpts:

On taxing carbon: His climate change plan called for a carbon tax that will “tax polluters causing the climate crisis, and return billions of dollars to working families to ensure the fossil fuel companies don’t subject us to unfair rate hikes.” And it aimed for a 40 percent cut in emissions by 2030, compared to 1990 levels — a level of ambition on par with Europe’s.

On offshore drilling: The plan also called for ending offshore drilling, for the sake of energy security and the environment. “If we are serious about moving beyond oil toward energy independence, lowering the cost of energy, combating climate change, and cutting carbon pollution emissions, then we must ban offshore drilling,” it read.

On climate denial: “The reality is that the fossil fuel industry is to blame for much of the climate change skepticism in America,” Sanders says in his climate plan. In October, he joined those calling for the Department of Justice to investigate ExxonMobil’s climate obfuscation.

On Donald Trump’s climate denial: “How brilliant can you be?” mocked Sanders in front of a New Hampshire audience in January. “The entire scientific community has concluded that climate change is real and causing major problems, and Trump believes that it’s a hoax created by the Chinese. Surprised it wasn’t the Mexicans.” Trump, for his part, has a history of flip-flopping on climate.

On encountering a climate-denying teenager: “Thank you for your question. You’re wrong.”

On climate change as a security threat: In an October debate, Sanders said climate change was the greatest threat to U.S. national security: “The scientific community is telling us that if we do not address the global crisis of climate change, transform our energy system away from fossil fuel to sustainable energy, the planet that we’re going to be leaving our kids and our grandchildren may well not be habitable. That is a major crisis.” In a debate in November, Sanders said that “climate change is directly related to the growth of terrorism.” (PolitiFact later called out the causality here as Mostly False, but there are indeed some linkages between climate change and war.)

On the Paris climate agreement: “While this is a step forward it goes nowhere near far enough. The planet is in crisis. We need bold action in the very near future and this does not provide that,” said Sanders in December. Clinton’s campaign chair John Podesta later used this statement to argue that Sanders wanted to back out of the Paris Agreement.

On keeping it in the ground: In November, he cosponsored the Keep It in the Ground Act of 2015, which would halt new coal leases on public lands and prohibit drilling on the outer continental shelf.

On the fossil fuel industry: “To hell with the fossil fuel industry.”

Grist noted that in March, the Climate Hawks Vote PAC ran a survey asking which candidate it should it endorse, and Sanders got 92 percent of the vote. “We need clean-energy leadership in the White House,” wrote the group it its subsequent endorsement of Sanders. “We need a climate revolution.”

Senator Sheldon Whitehouse (D-RI)

On Nov. 19, 2014, Senator Whitehouse, famous for his weekly floor speeches about the dangers of global warming, introduced the American Opportunity Carbon Fee Act which would impose a $42 per ton carbon tax, increasing annually at 2% above inflation. Senator Whitehouse’s price trajectory follows the Obama Administration’s central estimate of the “social cost of carbon,” the value of the harms caused by carbon pollution including falling agricultural productivity, damages to human health, and property losses from flooding.

The fee would be assessed on all coal, oil, and natural gas produced in or imported to the U.S. and also cover large emitters of non-carbon greenhouse gases and carbon dioxide from non-fossil-fuel sources.

All revenue generated by the carbon pollution fee – which could exceed $2 trillion over ten years – would be credited to an American Opportunity Fund to be returned to the American people.  Possible uses include:

• Economic assistance to low-income families and those residing in areas with high energy costs
• Tax cuts
• Social security benefit increases
• Tuition assistance and student debt relief
• Infrastructure investments
• Dividends to individuals and families
• Transition assistance to workers and businesses in energy-intensive and fossil-fuel industries
• Climate mitigation or adaptation
• Reducing the national debt

Senator Whitehouse spoke at length about this legislation on the Senate floor in introducing it. Video of his remarks can be seen here, and text is available here. Senator Whitehouse re-introduced an updated version of his proposal in May 2015, which raises the initial tax level slightly, to $45 per ton of CO2.

Congressman John B. Larson (D-CT)

Rep. John B. Larson, an 8th-term representative from Hartford, introduced his American Energy Security Trust Fund Act in August 2008 with twelve co-sponsors. His bill would impose an upstream tax on emissions of carbon dioxide of $15/ton with the level increasing by at least $10/ton annually. CTC estimates this trajectory would reduce U.S. CO2 emissions by 1/3 within a decade. Larson proposes a tax shift, using carbon tax revenue primarily to rebate payroll taxes.  Here is CTC’s commentary on the Larson bill and here is the bill.  Larson sponsored and kicked off CTC’s 2008 House briefing on Carbon Taxes.

Former Public Officials

George P. Shultz, former Secretary of State

Mr. Shultz, U.S. Secretary of Labor under Pres. Nixon (1969-70), Treasury Secretary under Presidents Nixon and Ford (1972-74), and Secretary of State under Pres. Reagan (1982-89), a consummate member of the Washington establishment, co-chairs a task force at Stanford that is urging Republicans to support a carbon tax. (See Stanford’s George Shultz on energy: It’s personal, Stanford Report, July 2012).

Following is an excerpt from his op-ed, How to Gain a Climate Consensus, in the Washington Post, Sept. 5, 2007:

The use of economic incentives (caps and trading rights, and carbon taxes) is essential to avoid disastrously high costs of control. The cap-and-trade system has been highly successful in reducing sulfur dioxide emissions by electricity utilities in the United States. That system relies on a scientifically valid and accepted emission-measurement system used by a clearly identified and homogeneous set of utilities. Fortunately, such a careful system of measurement exists for a viable greenhouse gas regimen. The product of collaboration between the World Resources Institute and the World Business Council for Sustainable Development, these standards for accounting and reporting greenhouse gases should be duly understood and adopted. Even with clear units of account, however, large problems arise as the coverage and heterogeneity of the system grow. And for trading across borders, the system needs to be accepted among the trading partners. Scams are easy to imagine. No nation should be allowed to trade without a verifiable, transparent system of measuring and monitoring of reductions, and holding emitters accountable. In many respects, a straight-out carbon tax is simpler and likelier to produce the desired result. If the tax were offset by cuts elsewhere to make it revenue-neutral, acceptability would be enhanced.

Gregory Mankiw, former Chair, President’s Council of Economic Advisers

Click here for links to the many pro-carbon tax articles and blog posts by President George W. Bush’s chief economic adviser, 2003-2005.  Mankiw, who teaches at Harvard, is the convener of the “Pigou Club” which he describes as an elite group of of economists and pundits who support taxing pollution instead of productive activity.

Lawrence Lindsey, former Director of the National Economic Council  and Assistant to the President on Economic Policy under President George W. Bush

Recommending permanent tax cuts, Mr. Lindsey also recommends a “greenhouse emissions tax” as the source of funding. “Longer term, however, spending cuts or a new source of revenue would be needed. Given the agenda of the incoming administration, the best source of such funds would be a greenhouse emissions tax.” (From Lawrence Lindsey Joins the Schumpeter Club, Capital Commerce, in U.S. News & World Report, December 30, 2008.)

William Ruckelhaus, former Administrator, U.S. Environmental Protection Agency

According to Grist Magazine, Ruckelhaus favors a carbon tax over cap-and-trade, since a carbon tax like cap-and-trade would rely upon market forces to determine where reductions should occur, but government administration would be much simpler. “It has the desired effect … It moves consumption toward less carbon-intensive activities. It does everything a cap-and-trade system does, but it’s about ten times simpler. And about one-tenth as popular, which is why we don’t have it.” (Obama’s Preferred Bill: EPA’s first administrator is bullish on Obama, but not cap-and-trade, Grist, December 29, 2008.)

Some members of Congress have voiced concern that measures to impose a price on carbon emissions will disproportionately burden energy users in their district or state. “We’re looking for some type of regional equity in whatever they propose,” said Rep. Marcy Kaptur (D-OH) during Energy and Commerce Committee deliberations over the Waxman-Markey climate bill, as reported in  the New York Times on May 8, 2009. At a Senate Finance Committee hearing on proposed cap-and-trade legislation, Senator Orrin Hatch (R-UT) complained that a $50/ton CO2 price would increase electric rates by 70% in his state, which relies heavily on coal for electricity.

The root of the issue is variations in regional fuel mix, compounded in some instances by variations in levels of energy use. Electricity rates in the Pacific Northwest, which is generously endowed with hydro-electric power, should scarcely be affected by carbon emissions pricing  through either a tax or cap-and-trade system. In contrast, the Plains states, which primarily employ coal for electricity generation, and the Northeastern states, which rely heavily on fuel oil for heating, could face disproportionate impacts. In addition, people in rural areas tend to drive longer distances than city-dwellers, so their transportation costs would be expected to rise more.

Are these regional differences significant? What if any steps should be taken to address them in designing a carbon tax and the accompanying revenue-recycling measures?

A thorough analysis of these questions is “The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis” (January  2008). In this AEI working paper, economists Kevin A. Hassett, Aparna Mathur and Gilbert E. Metcalf estimated the incidence of a carbon tax of $15 per metric ton of CO2 imposed “upstream” on fuel producers and importers. They defined the direct component as the increased cost of gasoline, home heating and electricity. The indirect component is the increased cost of other goods, ranging from air travel to food purchases, resulting from the higher cost of fuel used in their provision. The two components are of similar magnitude, but the indirect component doesn’t vary much across the U.S., reflecting our national market for consumer products.

Hassett et al. chose the household as the unit of consumption and considered the lifetime incidence of the tax. Taking both direct and indirect impacts into account, Hassett et al. calculated that in 2003 the largest variation between regions was less than 0.37% of household income. (This was less than the maximum regional differences in the two other years chosen for the analysis — 0.42% in 1987, and 0.89% in 1997.) They concluded:

Carbon taxes are… thought to have uneven regional effects. We … find that the regional variation is at best modest. By 2003 variation across regions is sufficiently small that one could argue that a carbon tax is distributionally neutral across regions.

The U.S. Census Bureau reports that the median U.S. household income in 2006 was $48,201. Thus, the 0.37% difference represents a difference of just $178 per year between typical households in the most affected and the least affected regions. The average interregional difference is much less.

Nevertheless, aggregated over millions of households this difference could be significant, especially if, as we and some others urge, a carbon tax (or cap-and-trade system) quickly attains and surpasses the relatively modest carbon emissions price level assumed in the Hassett analysis.

More recently, in “The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction” (Resources for the Future, April 2009), Dallas Burtraw, Richard Sweeney, and Margaret Walls examined income and distributional effects (across eleven regions) of an emissions cap with auctioned permits that resulted in a price of $20/ton CO2. (The regional incidence of a carbon tax would mirror that created by pricing carbon emissions using a cap.) They considered distributional effects on an annual basis which tends to magnify disparate impacts between income groups (and may also magnify regional differences) in contrast to Hassett et al.’s lifetime incidence analysis which tends to minimize them.

Burtraw et al. found that “putting a price on CO2 emissions can distribute costs unevenly across income groups and regions, and that revenue allocation decisions can either temper or exacerbate these distributional effects.” They found that, compared to revenue recycling via reduced payroll tax rates, a direct “dividend” approach would result in slightly larger net regional differences, especially in the lowest income groups. Yet even those differences would amount to no more than 2% of total annual income, assuming the $20/ton CO2 price.

Disparate impacts on households across regions can be compounded by regional differences in impacts on energy-intensive industries and their workers. For example, while energy consumers in coal-mining states might be affected only slightly more than those in other states, workers who mine, process or transport coal would face far larger impacts as a carbon tax (or cap) shifted employment and investment from coal to low-carbon alternatives. The flip side, of course, is that the same carbon tax or cap would benefit workers in areas with abundant renewable resources. A state like Montana, with both coal and wind resources, might be a net employment gainer under a carbon tax as construction and operation of wind generation facilities increased; but its coal workers would still need transition assistance.

Policy Options

Prof. Metcalf suggests a way to mitigate distributional disparities: adjust the amounts of revenue recycled according to the average regional carbon tax burden. For instance, if households in the Pacific Northwest would indeed pay less in carbon taxes than the national average, individuals or households in that region would receive proportionately lesser payroll tax reductions or direct distributions of revenue. Households in the Plains states might receive a correspondingly greater share of the recycled revenue. In this way, a revenue-neutral carbon tax could be regional-neutral as well.

To address disparate impacts on energy-intensive industries, Congressman Larson’s proposal designates 1/12 total of initial carbon tax revenues to assist affected workers and industries. (This “transition assistance” would be phased out over a decade.) A different approach in cap-and-trade legislation introduced by Reps. Inslee and Doyle — granting free allowances to “energy-intensive, trade-exposed” industries — would appear to mute the very price signal that such industries require to reduce emissions.

Other regional and affected-industry adjustments — hopefully temporary — could be made under either a carbon tax or cap-and-trade. We believe that under an explicit carbon tax they would be far simpler, more transparent and less likely to undermine carbon reduction incentives.

A Contrasting Analysis

In May 2009, economists Michael Cragg (UCLA) and Matthew E. Kahn (The Brattle Group) published a fascinating analysis correlating county-level CO2 emissions with the political beliefs and climate-policy voting records of Members of Congresss. Their paper, Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to Mitigate Greenhouse Gas Production, finds that:

[C]conservative, poor areas have higher per-capita carbon emissions than liberal, richer areas. Representatives from such areas are shown to have much lower probabilities of voting in favor of anti-carbon legislation. In the 111th Congress, the Energy and Commerce Committee consists of members who represent high carbon districts. These geographical facts suggest that the Obama Administration and the [Energy & Commerce] Committee will face distributional challenges in building a majority voting coalition in favor of internalizing the carbon externality.

The Cragg-Kahn analysis appears to have been prescient, with the Waxman-Markey bill laden with free allowances, “clean coal” RD&D funds, and other emoluments that won just enough support from Democrats representing high-carbon districts to win the bill’s passage in June 2009. However, unlike the AIF and RFF papers discussed above, the Cragg-Kahn paper is not an “incidence” analysis. This is because its unit of analysis (statistically, the “dependent variable”) was carbon emissions rather than carbon consumption.

Thus, the analysis assigned 100% of carbon emissions from power plants to the counties and districts where the plants are located, rather than allocating them to end-use customers — the households, offices and facilities that purchase the electricity and will pay the carbon tax or emission permit fees as they are passed through the supply chain. It therefore could not depict precisely how carbon emissions pricing will add differently to expenditures in one county or state versus another. Nevertheless, we commend the Cragg-Kahn paper as a provocative piece of political economy, along with John Kemp’s Reuters column, Carbon Geography of the United States, that brought the paper to our attention.

Another Thoughtful Analysis

A Nov. 3, 2009 post on The New Republic’s Vine blog, Cap and Trade Costs: Place Matters, featured a map that grouped U.S. metropolitan areas into quintiles according to the per-household cost impact of proposed cap-and-trade bills. The authors noted:

The household costs of cap-and-trade compliance … depend quite a bit on what metro you live in. Ranging above and below the average $160 cost to a household nationally in 2020, the average metro figures range from a high of $277 per household in Lexington, KY to a low of just $96 in Los Angeles. Low costs are registered all across the West’s metros and in Northeastern metros like New York, Boston, and Rochester. Much higher costs will be borne by households in metros all across the upper South and Ohio Valley—places like Cincinnati, and Indianapolis, and Nashville. So once again, as we keep saying: Place matters.

The map, credited to the Brookings Institution, is worth studying. Also worth pondering is the authors’ conclusion:

[R]egions that want to do well for their citizens might want to manage growth a little better, provide transportation options, and think about cleaning up their energy sourcing.

Last, a report published by Resources for the Future in October 2013, by Daniel F. Morris and Clayton Munnings, Designing a Fair Carbon Tax, argues that regional disparities in the incidence of a federal carbon tax may be less than commonly thought.

The essence of carbon taxes is to make fossil fuels more expensive. That will motivate electricity providers to decarbonize their fuel mix and incentivize businesses and households to become more energy-efficient. However, it will also add financial stress, particularly for lower-income families and coal-dependent areas, unless some of the revenues are directed to those groups and places.

It bears repeating that carbon taxes, to be fully effective, must rise quickly and high — to the point that they will raise large sums of revenue. But generating new government dollars isn’t their primary purpose; indeed, distributing revenues from carbon taxes as “carbon dividends” or using them to cut onerous taxes like payroll taxes in revenue-neutral “tax shifts or swaps,” has been built into many carbon tax proposals.

Rather, the intent of robustly taxing carbon emissions is to cut those emissions by making burning fossil fuels convincingly costlier than conservation, efficiency and renewable energy. Rather than needing more tax revenue to cut CO2 emissions, we need to shift more of the total tax burden onto dirty energy, without harming low- and middle-income families.

Different effects of carbon taxes across the income range point toward carbon dividends

Most middle- and low-income households spend a higher percentage of their income on gasoline, other fuels and electricity than do higher-income households. In 2019, for example, the wealthiest 20% U.S. households spent just 2% of their after-tax income on gasoline; the percentage for the lowest quintile, 8%, was four times as high. Clearly, imposing a gasoline tax or, by implication, a carbon tax, without tax-shifting or dividends will disproportionately burden lower-income families.

But expressing energy expenditures in absolute dollar terms is a different and arguably more meaningful measure. Averaged over the 10-year period 2010-2019, the top-echelon quintile spent an average of $3,509 on gasoline, or 3.3 times as much as the $1,059 spent by the poorest 20% of households. Put differently, when all household outlays for gasoline are apportioned among quintiles, the highest-earning quintile accounted for 31% of the total, while the lowest quintile contributed just 9%. (The middle quintile, true to its name, spent exactly 20% of total outlays — see chart.)

What’s true for gasoline applies to energy in general, as the Citizen’s Climate Lobby confirmed in a 2016 report analyzing the short-term financial impact of its fee and dividend idea set at a level of $15 per ton of carbon dioxide. The report painstakingly captures wide geographic variations in the carbon contents of fuels used to generate electricity, among other variables, giving it a finer grain than many previous analyses of carbon tax incidence. It found that households in the top quintile would pay an on average additional $319 per month, directly and indirectly, through higher fossil fuel prices associated with the carbon fee; that’s more than three times the additional $96 per month that households in the lowest quintile would pay. (The middle three quintiles would pay $116, $143, and $183, respectively.)

Although the lowest quintile would bear the greatest burden of the carbon fee as a percentage of household income, it would pay the least in absolute terms. This makes possible a “progressive” outcome through rebates such as CCL’s proposed dividends, or via appropriate tax-shifts. Significantly, the report found that 53% of households (58% of individuals) would receive more through monthly rebates than they would incur from the carbon tax. Even better, the majority of these benefits would be reaped by the most vulnerable, with nearly 90% of households below the poverty line benefiting in net terms from the carbon “fee and dividend” plan.  Monthly dividends, in other words, could ensure an equitable and progressive carbon tax.

The bulk of carbon taxes will be paid by families of above-average means

The upward skew in carbon use over the income range comes about because higher-income households don’t just drive more, they also fly more (burning jet fuel), they tend to own bigger (and sometimes multiple) houses to heat and cool, and they buy and use more products that require electricity or industrial fuels to manufacture, deliver and use. This means that the bulk of carbon taxes will be paid, directly or indirectly, by families of above-average means. For the gasoline part of carbon taxes, we estimate that around two-thirds will be paid by above-average-income households (calculated by summing: the first and second quintiles’ shares of gasoline expenditures in the pie chart above, plus half of the middle quintile’s share, yielding a total of 66%; data are from the Bureau of Labor Statistics’ Consumer Expenditure Survey, 2014).

Using carbon tax revenues to cut corporate taxes is problematic

Conservatives who support, or at least are willing to consider, taxing carbon emissions (yes, there are some) fall into two camps on revenue treatment: backing the carbon dividend plan proposed by the Climate Leadership Council (which in turn draws on the fee-and-dividend approach espoused by the Citizens Climate Lobby); or urging that the carbon revenues be applied to reduce the U.S. corporate income tax.

Expert analysis published several years ago by Resources for the Future (which we summarize and link to on our Tax Shifting page) suggested that using carbon tax revenue to reduce corporate income tax rates would benefit middle- and upper-income households but not lower-income families, relatively few of whom own stocks whose share values would rise as corporate tax rates were reduced. Political deals (sometimes dubbed “grand bargains”) to win Republican support for carbon taxes, such as the proposal by Democratic Senators Sheldon Whitehouse (RI) and Brian Schatz (HA) therefore risk alienating labor, low-income advocates and economic-justice activists, many of whom are already tepid at best about carbon tax legislation that doesn’t directly invest considerable carbon revenues in a “just transition.”

Earlier analyses of carbon tax incidence

In 2010, four leading economists released a report detailing the impacts on different income groups of various cap-and-trade carbon pricing proposals. The following is an excerpt from the abstract of Distributional Implications of Alternative U.S. Greenhouse Gas Control Measures by Sebastian Rausch, Gilbert E. Metcalf, John M. Reilly, and Sergey Paltsev, published by the MIT Joint Program on the Science and Policy of Climate Change:

[W]e find that carbon pricing by itself (ignoring the return of carbon revenues through allowance allocations) is proportional to modestly progressive. This striking result … stands in sharp contrast to previous work … The main reason is that lower income households derive a large fraction of income from government transfers and, reflecting the reality that these are generally indexed to inflation, we hold the transfers constant in real terms. As a result this source of income is unaffected by carbon pricing, while wage and capital income is affected.

As the authors suggest, their finding runs counter to conventional economic thinking that consumption taxes (including carbon taxes) are necessarily regressive when revenue treatment is ignored.

Last, a report published by Resources for the Future in October 2013, by Daniel F. Morris and Clayton Munnings, Designing a Fair Carbon Tax, provides a succinct guide to issues of fairness and efficiency in crafting a federal carbon tax.

Inter-Generational Issues

In 2016 the Citizens’ Climate Lobby commissioned a paper analyzing the effects on households of a $15/ton carbon “fee and dividend” plan in which the impacts of higher fossil fuel prices are at least somewhat offset by monthly “dividend” distributions. While the paper’s main thrust was the different impacts on rich, middle-class and poor households (summarized here), it also examined the financial effect by age group.

The CCL paper found that around 2/3 of very young and very old households – ages 18-35 and 80 and above – would experience a net benefit after the monthly dividend payments, compared to 44% of households aged 50-65. These findings reflect the fact that younger and elder households typically have smaller carbon footprints through lower levels of consumption, relative to households in the middle-age groups. Moreover, younger households tend to be relatively larger and thus would receive larger dividends, under the CCL plan.

In a similar vein, economists at the Washington, DC think-tank Resources for the Future considered the generational impacts of a $30/ton carbon tax in a 2013 paper, “Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts.” Writing at a time when so-called “deficit hawks” still held some sway in public discourse, they concluded that dedicating the carbon tax revenues to deficit reduction would offer particular benefits to the young by reducing tax burdens that might otherwise carry into the distant future.

On the other hand, asking today’s middle-aged and elder Americans to allow carbon tax revenues to be used to shrink the national debt risks compounding the difficulty of passing a carbon tax whose benefits already accrue largely to future generations. If the objective is to assemble a political majority that can pass a robust carbon tax, it may be best to leave deficit reduction off the table in favor of either tax-shifting or revenue return a la fee-and-dividend.

Regional Differences

Members of Congress repeatedly voice concern that measures to impose a price on carbon emissions will disproportionately burden energy users in their district or state. “We’re looking for some type of regional equity in whatever they propose,” said Rep. Marcy Kaptur (D-OH) during Energy and Commerce Committee deliberations over the Waxman-Markey climate bill, as reported in  the New York Times on May 8, 2009. At a Senate Finance Committee hearing on proposed cap-and-trade legislation, Senator Orrin Hatch (R-UT) complained that a $50/ton CO2 price would increase electric rates by 70% in his state, which relies heavily on coal for electricity.

The root of the issue is variations in regional fuel mix, compounded in some instances by variations in levels of energy use. Electricity rates in the Pacific Northwest, which is generously endowed with hydro-electric power, should scarcely be affected by carbon emissions pricing  through either a tax or cap-and-trade system. In contrast, the Plains states, which primarily employ coal for electricity generation, and the Northeastern states, which rely heavily on fuel oil for heating, could face disproportionate impacts. In addition, people in rural areas tend to drive longer distances than city-dwellers, so their transportation costs would be expected to rise more.

Are these regional differences significant? What if any steps should be taken to address them in designing a carbon tax and the accompanying revenue-recycling measures?

A thorough analysis of these questions is “The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis” (January  2008). In this AEI working paper, economists Kevin A. Hassett, Aparna Mathur and Gilbert E. Metcalf estimated the incidence of a carbon tax of $15 per metric ton of CO2 imposed “upstream” on fuel producers and importers. They defined the direct component as the increased cost of gasoline, home heating and electricity. The indirect component is the increased cost of other goods, ranging from air travel to food purchases, resulting from the higher cost of fuel used in their provision. The two components are of similar magnitude, but the indirect component doesn’t vary much across the U.S., reflecting our national market for consumer products.

Hassett et al. chose the household as the unit of consumption and considered the lifetime incidence of the tax. Taking both direct and indirect impacts into account, Hassett et al. calculated that in 2003 the largest variation between regions was less than 0.37% of household income. (This was less than the maximum regional differences in the two other years chosen for the analysis — 0.42% in 1987, and 0.89% in 1997.) They concluded:

Carbon taxes are… thought to have uneven regional effects. We … find that the regional variation is at best modest. By 2003 variation across regions is sufficiently small that one could argue that a carbon tax is distributionally neutral across regions.

The U.S. Census Bureau reports that the median U.S. household income in 2006 was $48,201. Thus, the 0.37% difference represents a difference of just $178 per year between typical households in the most affected and the least affected regions. The average interregional difference is much less.

Nevertheless, aggregated over millions of households this difference could be significant, especially if, as we and some others urge, a carbon tax (or cap-and-trade system) quickly attains and surpasses the relatively modest carbon emissions price level assumed in the Hassett analysis.

More recently, in “The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction” (Resources for the Future, April 2009), Dallas Burtraw, Richard Sweeney, and Margaret Walls examined income and distributional effects (across eleven regions) of an emissions cap with auctioned permits that resulted in a price of $20/ton CO2. (The regional incidence of a carbon tax would mirror that created by pricing carbon emissions using a cap.) They considered distributional effects on an annual basis which tends to magnify disparate impacts between income groups (and may also magnify regional differences) in contrast to Hassett et al.’s lifetime incidence analysis which tends to minimize them.

Burtraw et al. found that “putting a price on CO2 emissions can distribute costs unevenly across income groups and regions, and that revenue allocation decisions can either temper or exacerbate these distributional effects.” They found that, compared to revenue recycling via reduced payroll tax rates, a direct “dividend” approach would result in slightly larger net regional differences, especially in the lowest income groups. Yet even those differences would amount to no more than 2% of total annual income, assuming the $20/ton CO2 price.

Disparate impacts on households across regions can be compounded by regional differences in impacts on energy-intensive industries and their workers. For example, while energy consumers in coal-mining states might be affected only slightly more than those in other states, workers who mine, process or transport coal would face far larger impacts as a carbon tax (or cap) shifted employment and investment from coal to low-carbon alternatives. The flip side, of course, is that the same carbon tax or cap would benefit workers in areas with abundant renewable resources. A state like Montana, with both coal and wind resources, might be a net employment gainer under a carbon tax as construction and operation of wind generation facilities increased; but its coal workers would still need transition assistance.

Policy Options

Prof. Metcalf suggests a way to mitigate distributional disparities: adjust the amounts of revenue recycled according to the average regional carbon tax burden. For instance, if households in the Pacific Northwest would indeed pay less in carbon taxes than the national average, individuals or households in that region would receive proportionately lesser payroll tax reductions or direct distributions of revenue. Households in the Plains states might receive a correspondingly greater share of the recycled revenue. In this way, a revenue-neutral carbon tax could be regional-neutral as well.

To address disparate impacts on energy-intensive industries, Congressman Larson’s proposal designates 1/12 total of initial carbon tax revenues to assist affected workers and industries. (This “transition assistance” would be phased out over a decade.) A different approach in cap-and-trade legislation introduced by Reps. Inslee and Doyle — granting free allowances to “energy-intensive, trade-exposed” industries — would appear to mute the very price signal that such industries require to reduce emissions.

Other regional and affected-industry adjustments — hopefully temporary — could be made under either a carbon tax or cap-and-trade. We believe that under an explicit carbon tax they would be far simpler, more transparent and less likely to undermine carbon reduction incentives.

A Contrasting Analysis

In May 2009, economists Michael Cragg (UCLA) and Matthew E. Kahn (The Brattle Group) published a fascinating analysis correlating county-level CO2 emissions with the political beliefs and climate-policy voting records of Members of Congresss. Their paper, Carbon Geography: The Political Economy of Congressional Support for Legislation Intended to Mitigate Greenhouse Gas Production, finds that:

[C]conservative, poor areas have higher per-capita carbon emissions than liberal, richer areas. Representatives from such areas are shown to have much lower probabilities of voting in favor of anti-carbon legislation. In the 111th Congress, the Energy and Commerce Committee consists of members who represent high carbon districts. These geographical facts suggest that the Obama Administration and the [Energy & Commerce] Committee will face distributional challenges in building a majority voting coalition in favor of internalizing the carbon externality.

The Cragg-Kahn analysis appears to have been prescient, with the Waxman-Markey bill laden with free allowances, “clean coal” RD&D funds, and other emoluments that won just enough support from Democrats representing high-carbon districts to win the bill’s passage in June 2009. However, unlike the AIF and RFF papers discussed above, the Cragg-Kahn paper is not an “incidence” analysis. This is because its unit of analysis (statistically, the “dependent variable”) was carbon emissions rather than carbon consumption.

Thus, the analysis assigned 100% of carbon emissions from power plants to the counties and districts where the plants are located, rather than allocating them to end-use customers — the households, offices and facilities that purchase the electricity and will pay the carbon tax or emission permit fees as they are passed through the supply chain. It therefore could not depict precisely how carbon emissions pricing will add differently to expenditures in one county or state versus another. Nevertheless, we commend the Cragg-Kahn paper as a provocative piece of political economy, along with John Kemp’s Reuters column, Carbon Geography of the United States, that brought the paper to our attention.

Another Thoughtful Analysis

A Nov. 3, 2009 post on The New Republic’s Vine blog, Cap and Trade Costs: Place Matters, featured a map that grouped U.S. metropolitan areas into quintiles according to the per-household cost impact of proposed cap-and-trade bills. The authors noted:

The household costs of cap-and-trade compliance … depend quite a bit on what metro you live in. Ranging above and below the average $160 cost to a household nationally in 2020, the average metro figures range from a high of $277 per household in Lexington, KY to a low of just $96 in Los Angeles. Low costs are registered all across the West’s metros and in Northeastern metros like New York, Boston, and Rochester. Much higher costs will be borne by households in metros all across the upper South and Ohio Valley—places like Cincinnati, and Indianapolis, and Nashville. So once again, as we keep saying: Place matters.

The map, credited to the Brookings Institution, is worth studying. Also worth pondering is the authors’ conclusion:

[R]egions that want to do well for their citizens might want to manage growth a little better, provide transportation options, and think about cleaning up their energy sourcing.

Estimated CO2 Reductions from a Briskly Rising Carbon Tax

The Carbon Tax Center long considered Rep. James McDermott’s “Managed Carbon Price Act,” one of the two most effective climate measures ever introduced in Congress. (The other, the “America’s Energy Security Trust Fund Act” introduced in 2009 and re-introduced in 2015 by Rep. John B. Larson, chair of the House Democratic Caucus and fourth-ranking Democrat in the House of Representatives, had a similar price and ramp-up and therefore a similar emissions reduction profile.) The bill by McDermott, a staunch Democrat who represented Washington’s 7th congressional district from 1989 to 2017, would have established a national carbon tax starting at a rate of $12.50 per metric ton of carbon dioxide, rising annually by the same $12.50/metric ton.

We estimated that the carbon tax levels mandated under the McDermott bill would have reduced U.S. CO2 emissions from fossil fuel combustion by 1/3 within a decade. Using our 8-sector carbon-tax-model spreadsheet, we projected that the bill would have led to the progression of emission reductions shown in the graph below:

Discussion

Carbon taxes embody the principle that truthful prices for fossil fuels must include the “externality costs” that their burning imposes on society, i.e., that polluters should pay for the damage caused by polluting. Briskly increasing carbon taxes will instill in energy consumers and producers strong incentives to efficiently reduce their use of fossil fuels and the attendant emissions of carbon dioxide while increasing efficiency and shifting to renewable energy.

The “supply-side response” will materialize largely through investment — for example, in carbon-free wind or solar power farms or lower-carbon gas-fired generating plants, or possibly in low-carbon biofuels. The  “demand-side” response will arise in literally millions of decisions, ranging from the choice of car to drive (in multi-car households) to longer-term location decisions of families, businesses and institutions, all reflecting the fact that usage is at least somewhat sensitive to price, i.e., there is some “price-elasticity” (to use economic jargon) in energy usage.

To capture these responses quantitatively, CTC has developed an 8-sector National Carbon Tax Model, which we update every year or two. The model captures both demand- and supply-side responses to carbon taxes and incorporates time lags in end-users’ responses to the tax-induced higher prices. It divides U.S. CO2 emissions into seven sectors: electricity, which in 2015 accounted for 37% of nationwide CO2 emissions; personal ground travel, accounting for 22% (almost entirely from burning gasoline); freight (goods movement), 9%, largely diesel fuel for trucks; jet fuel for air travel (4%), oil refining (6%), other petroleum (also 6%), natural gas other than for electricity (11%), and, an eighth “sector,” miscellany (5%).

We apply separate long-run demand price-elasticities — 70% for electricity, 35% for gasoline, 60% for jet fuel, and 40-50% for the other sectors — with further assumptions for supply-side substitution of carbon as well. (All assumptions are detailed in the spreadsheet; users may input their own. Readers interested in the carbon contents of electricity and various fuels may also wish to examine our Carbon Contents spreadsheet.)

As configured in the file version, the model assumes an initial (year-2016) carbon tax of $12.50 per metric ton of carbon dioxide, ramped up each year by the same $12.50 per metric ton (so that the tax level in the tenth year is $125 per metric ton of CO2, which equates to $113.40 per short ton, for example). The model indicates that such a carbon tax would, by 2026, result in U.S. CO2 emissions falling 31-32% below today’s baseline projections for 2026, and 41% below actual CO2 emissions in 2005. Also strikingly, the carbon tax provided in the McDermott bill would cause U.S. petroleum consumption in 2026 to be 26% less than 2005 actual consumption and 19% below 2026 projected consumption (without a carbon tax).

Notes on Price Elasticity

Demand price-elasticity denotes the extent to which rises in price engender a drop in demand. A price-elasticity of 50% means that the drop in demand is half as steep as the price rise. Thus, a 2% increase in price would be required to engender a 1% decrease in demand. Importantly, for large price increases such as we propose over time, the drops in demand would be proportionately less, reflecting the law of diminishing returns. And at the same time the phased-in tax is causing prices of fossil fuels to rise, incomes would be rising, offsetting some of the reductions.

Because many if not most determinants of energy use such as infrastructure, location and capital goods like houses and cars can’t be changed overnight, drops in demand due to higher prices can take years to materialize fully. Our elasticity estimates are “long-run” figures, requiring around a decade to manifest fully, as opposed to “short-run” elasticities that apply to rapid but smaller changes, i.e., within a year. Short-run elasticities also exist, of course, as everybody who hesitates before paying an increased price for a product is aware, but they are less than the long-run values.

In a 2015 blog post, What an Energy-Efficiency Hero Gets Wrong about Carbon Taxes, we explored (and dispelled) some myths about price-elasticity and carbon taxes that are surprisingly widespread, even among veteran environmental advocates and analysts. It remains one of our most widely read posts, and we commend it to anyone seeking to understand how, why and how fast a carbon tax can be expected to cut carbon emissions.

Below we give links to articles and papers on energy price-elasticity in the United States. Some are for a general audience, some are technical. Many focus on automobiles and gasoline, the area of energy use that has been studied the most.

• Resources for the Future working paper 23-11, Prest, Fell, Gordon & Conway, Estimating the Emissions Reductions from Supply-side Fossil Fuel Interventions, 2023. Belying the title’s supply-side emphasis, this paper contains an excellent compendium of recent research estimating demand elasticities in the U.S. and some other countries for gasoline and/or crude oil. It finds an average of (negative) 0.35 for crude oil’s elasticity. Though the authors’ assertion that gasoline’s demand elasticity should be double that for crude oil would imply 0.70 for gasoline, we believe that this assertion is somewhat simplistic, especially for the United States, where infrastructure, culture and policy inhibit demand adaptation. All things considered, we believe the paper’s conclusion supports a U.S. gasoline demand price-elasticity greater than 0.35 but not twice as great.
• J.E. Hughes, C.R. Knittel, D. Sperling, Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand, 2006, National Bureau of Economic Research. The authors sifted 2001-2006 gasoline use data and found price-elasticity to be minuscule — just 4% in the short-run and, though they didn’t quantify it, not much greater in the long-run.
• Kenneth Small & Kurt Van Dender, Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect, 2006, revised 2007 (a shorter version was published in Energy Journal in 2007). Small, a Professor of Economics at U-C Irvine and a peerless transportation economist and thinker, co-authored the most perceptive and persuasive analysis of U.S. gasoline demand we’ve seen. The paper analyzed 1966-2001 data for each of the 50 states and found (i) a short-run price elasticity of gasoline of roughly 9% (comprised equally of changes in fuel efficiency and miles driven); and (ii) a long-run price elasticity of gasoline of around 40% (also arising equally from changes in fuel efficiency and miles driven). Note: Prof. Small told us that adding more recent data through 2004 doesn’t alter these findings.
• J.E. Hughes, C.R. Knittel, D. Sperling, Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand, 2006, National Bureau of Economic Research. The authors sifted 2001-2006 gasoline use data and found price-elasticity to be minuscule — just 4% in the short-run and, though they didn’t quantify it, not much greater in the long-run.
• C. Komanoff, Komanoff letter to Sperling. In a letter sent in December 2006, CTC’s Komanoff asked Prof. Sperling to reconcile his findings above with the contrary findings of Small & Van Dender.
• Nicholas Lutsey & Daniel Sperling, Energy Efficiency, Fuel Economy, and Policy Implications, Transportation Research Record, 2005. Though not strictly about price elasticity, this paper deconstructed technical changes in the U.S. auto fleet from 1975 to the early 1980s, a period in which most technical gains were devoted to improving fuel efficiency, and since then, when technical improvements were used “to satisfy private desires (more power, size and amenities).” Anyone seeking to understand automobile fuel economy should read this paper.
• Dermot Gately & Hillard G. Huntington, The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand, 2001, Economic Research Reports, RR# 2001-01, C.V. Starr Center for Applied Economics, NYU. Using 1971-1997 data, and lumping the U.S. with the other (OECD) industrial nations, the authors derived long-run price-elasticities of only 24% for all energy, but 64% for petroleum products alone. (Could fuel substitution be the reason for the disparity?) Encouragingly, they reported a relatively low long-run income-elasticity, 55-60%, for both oil and energy in the OECD countries, indicating that, all things equal (i.e., with constant prices), each 3% growth of GDP gives rise to less than a 2% rise in energy use.

We invite CTC friends and visitors to comment on these materials and to suggest further reading. In 2007 environmental journalist-activist Gar Lipow compiled a handy bibliography of some of the best studies on the price-elasticity of demand for energy. Gar’s summaries of nearly two dozen price-elasticity studies from the U.S. and around the world are an invaluable guide to this important subject.

We also recommend the overview of seven sets of integrated assessment model results presented in “Carbon Taxes to Achieve Emissions Targets, Insights From EMF-24” (Stanford Energy Modeling Forum, 2012) which concluded that a carbon price would need to rise briskly, to roughly $440/ton CO2 by 2050 to reduce U.S. emissions in that year by 80%. That’s a serious price trajectory, in line with CTC’s modeling results.

18. How will carbon taxes handle carbon sequestration? Plastics? Petrochemicals?

Offsetting credit will be provided to the extent the carbon dioxide is actually sequestered, in order to eliminate any disincentive to sequestration. Releases of CO2 from converting fossil fuels to plastics or petrochemicals in non-combustion processes will be taxed at the same level as CO2 emitted in the production of energy or for transportation purposes.

19. Will a carbon tax apply to nuclear power?

A carbon tax will only be imposed on the use or combustion of carbon and the resulting emission of carbon dioxide. A carbon tax would not be imposed directly on the generation of nuclear power, though of course it would apply to any CO2 released in mining, enriching and transporting uranium, in other uses ancillary to the generation of nuclear power (such as fuel used for back-up generation), and in storing radioactive wastes.

20. How high should carbon taxes go? How fast should they climb?

While carbon taxes will need to be rise briskly to create the required price incentives, they will need to be phased in to give individuals and businesses the opportunity to adjust. There’s no magic formula or perfect number, but a tax that grows fast enough to reduce CO2 emissions by 1/3 within a decade probably offers a viable combination of meaningful incentive and opportunity for adaptation. The $15 per ton of CO2 “starter tax” mentioned earlier, equating to around 14 cents a gallon of gasoline, fits the lower end of that range. At least as important as the tax level is the commitment to keep raising the tax, preferably annually, so that energy-critical decisions, from car-buying (Hummer vs. Prius) to home-buying (exurb vs. transit-oriented community) to factory locating (highway interchange vs. rail line), are made with carbon-appropriate price signals.

21. Must carbon taxes be global to work?

Though carbon taxes can be applied locally, nationally or globally, the eventual goal is a global tax. Not only is the climate crisis global in both scope and solution, but a global carbon tax will avert potential leakage by carbon emitters attempting to move their combustion of carbon from countries that tax carbon to those that don’t. U.S. carbon tax legislation should include border tax adjustments to help protect domestic industry from unfair competition and to tax imports of other nations until they enact their own taxes on carbon pollution. Still, let’s not make perfection the enemy of the good; carbon pollution should be taxed wherever possible.

22. Why a carbon tax instead of a cap-and-trade system?

Carbon taxes are superior to cap-and-trade programs for seven fundamental reasons:

• Carbon taxes will lend predictability to energy prices, whereas cap-and-trade systems will only exacerbate price volatility that discourages investments in carbon-reducing energy efficiency and carbon-replacing renewable energy.
• Carbon taxes can be implemented more quickly than complex permit-based cap-and-trade systems.
• Carbon taxes are transparent and easily understandable, making them more likely to elicit public support than opaque and complex cap-and-trade.
• Carbon taxes aren’t easily manipulable by special interests, whereas the complexity of cap-and-trade leaves it rife for exploitation by the financial industry.
• Carbon tax revenues can be more or less guaranteed and integrated into state or federal fiscal policy, owing to their predictability, whereas the price-volatility of cap-and-trade precludes its being counted on as a revenue source.
• Carbon taxes are replicable across borders, since the price “metric” embodied in a carbon tax is far more universal than the quantity-reduction metric underlying cap-and-trade.
• Perversely, cap-and-trade discourages voluntary/individual carbon reductions, since those cause a lowering of prices of emission permits which undercuts low-carbon investments; carbon taxes are free of this unintended negative consequence.

23. How responsive is energy demand to the price of fuels?

That varies with the type of fuel, the expected persistence of the price change, and the availability of substitutes. The two forms of energy that economists have studied most intensively are gasoline (which in 2014 accounted for 20% of U.S. emissions of carbon dioxide) and electricity (39%).  From our own micro-economic analyses as well as a literature review, CTC believes a “price-elasticity” of 35% (or negative 0.35, in the jargon) is an appropriate assumption for gasoline demand, and 70% for electricity. These assumptions mean that drops in demand are less steep than rises in the fuel price but are still substantial. For all other fuel uses, ranging from diesel fuel for trucks and jet fuel for planes to home heating and industrial fuels — the overall price-responsiveness is probably greater than for gasoline but less than for electricity. (See more detailed discussion on our “Effectiveness” page.)

These estimates are “long-run” elasticities, meaning that price rises take years to fully affect demand. Households and businesses can’t overnight adjust their stocks of energy-using equipment (cars, major appliances, office layouts, etc.), nor can they instantly adapt location decisions that determine distances that people and goods travel. On the other hand, carbon taxes and the resulting relative rises in fossil fuel prices will induce reductions in carbon emission rates on the supply side. For example, higher coal prices due to carbon taxing will lead cost-minimizing power grids to more heavily dispatch lower-emitting natural gas power plants in the short run, and to switch increasingly to zero-carbon wind and solar generation over time.

24. What are the non-climate costs of using fossil fuels?

Fossil fuels burden human beings, communities and nature with enormous environmental and social damages apart from destabilizing climate. Chief among them are “traditional” air pollution such as car and truck exhaust and smokestack emissions; destruction of land and water from extracting and transporting fuels; and the militarism, economic inequality and political authoritarianism that is endemic to extractive economies (e.g., Saudi Arabia, Nigeria, Indonesia). Many researchers believe the magnitude of these and other “indirect” costs exceeds the “market” prices paid for coal, oil and gas.

25. What are the ancillary benefits of taxing carbon?

As the previous Q&A suggests, U.S. carbon taxes will deliver vast non-climate benefits by discouraging use of fossil fuels. These will range from better air quality and less strip-mining to reduced entanglement in the unstable and dangerous Middle East and a less powerful fossil fuel industry. Americans can also look forward to a slew of indirect benefits – for example, lighter road traffic arising from a decrease in vehicle-miles traveled, as families and businesses adapt to higher gasoline and diesel fuel prices by trimming their least essential trips and consolidating others.

26. Who favors carbon taxes?

Carbon taxes are supported by a diverse group of opinion leaders, pundits, scientists and economists. The task now is to broaden and deepen support for taxing carbon among both the political elites and the grassroots – and to do so in the face of concerted opposition from fossil fuel interests determined to preserve (and increase!) their sales rather than watch their sector, and profits, shrink as the carbon tax steadily diminishes sales and use of coal, oil and gas.

27. How have past fuel tax efforts fared in the U.S.?

Poorly. The idea of taxing energy to better reflect its full costs collides with Americans’ historical entitlement to cheap energy and the anti-tax ideology of the past 35 years, not to mention the political muscle of the fossil fuel industry. This triad helped kill the last big effort to tax energy — President Clinton’s Btu tax in 1993. Nevertheless, we’re optimistic that making the carbon tax revenue-neutral, with all revenue recycled via tax-shifting or returned via carbon tax dividends, can soften resistance. Indeed, as described in the next Q&A, polls now point to strong support for a revenue-neutral tax designed to combat climate change.

28. What does polling indicate about carbon taxes?

Opinion polls increasingly find Americans grasping the need to address climate change and warming (oops) to a revenue-neutral carbon tax. A January 2015 poll by political scientists at Stanford University and Resources for the Future found that two-thirds of Americans support making corporations pay a price for carbon pollution, provided the revenues are redistributed, i.e., made revenue-neutral. (See graphic at left.)

More recently, in March 2016, nearly two-thirds (64%) of Americans polled told Gallup’s annual environmental poll that they are worried a “great deal” or a “fair amount” about global warming. That figure is up from 55% in March 2015 and is the highest reading since 2008, according to Gallup. (See graphic below.)

Other results from the 2016 Gallup poll are equally striking. They show a record-high share of Americans stating that climate change poses a threat to them and their way of life; a record number agreeing that climate change is caused primarily by human activity; and climate concern climbing across the political spectrum.

There’s more about these two polls as well as earlier ones on our page on opinion polling.

29. What will a carbon tax look like to me?

On the one hand, just about everything requiring fossil fuels, from a drive in the country to imported produce, will cost more, with prices rising the most for activities or goods that use the most fossil fuels. But the upside is three-fold: (i) your tax reduction or dividend check will offset much, perhaps more than 100%, of those price increases; (ii) you’ll be able to minimize your tax bite by cutting down on fuel usage (e.g., shortening those country drives, buying locally-grown produce, purchasing “green power” from wind and solar cells); and (iii) Americans’ combined behavior changes in response to the carbon tax will go a long way toward protecting the climate and averting the cataclysmic consequences of unchecked global warming.

30. Who’s taxing carbon now?

See our Where Carbon Is Taxed page. Or, download Sightline Institute’s excellent 2014 report, All the World’s Carbon Pricing Systems in One Animated Map, with maps tracing the institution (and, in at least one instance, Australia, the rescission) of carbon taxing worldwide, as well as carbon pricing administered via cap-and-trade programs. The Sightline report includes helpful tables, too.

The most notable carbon tax in the Western Hemisphere remains that in British Columbia. Carbon dioxide emissions from that province, Canada’s third most populous, began to be taxed on July 1, 2008 at a rate of $10 (Canadian) per metric ton and were raised annually to reach the current rate of $30 per metric ton (which equates to just over 20 U.S. dollars per U.S. ton). (We assessed BC’s carbon tax in a December 2015 report.) Voters in Boulder (Colorado) passed a carbon tax referendum in 2006; while Boulder’s tax equates to just $7/ton and applies only to electricity, it nonetheless establishes an important precedent: the first climate-protecting tax ever levied in the United States. Citizens in Washington State and five other states are campaigning to enact statewide carbon taxes.

31. What’s the political strategy for winning carbon taxes?

An effective campaign for carbon taxes must be both intellectually sound and politically palatable. The key point: Taxing climate pollution is economically and morally preferable to taxing productive activity such as work, savings or investment. Instead of discouraging productive effort, initiative and investment as other tax burdens do, a tax on carbon pollution raises the cost of harmful activity and thereby encourages efficiency and renewable energy. Revenues from carbon taxes can fund “dividends” to all U.S. residents or be used to reduce existing taxes, shifting tax burdens onto pollution and pollution-generating activities. Framing taxes on carbon pollution as an embodiment of the “polluter pays” principle unites interests as diverse as environmental-justice advocates, free-market conservatives and classical economists. Sound design of the revenue side of carbon tax legislation will also ensure that people of limited means, who use less energy than average, are made better off, not worse.

32. What can I do to advance carbon taxes?

The big need now is to develop grassroots support for a carbon tax. Start talking about a tax on climate pollution at your local environmental, religious or civic group meetings. Subscribe to CTC’s occasional but timely emails by filling in the sign-up pop-up box on our home page. Join Citizens Climate Lobby, the vital and committed nationwide network of activists that is putting the revenue-neutral carbon tax known as “fee-and-dividend” (delightfully explained in CCL’s 2-minute video) on the policy map. And please donate to the Carbon Tax Center, via our on-line Donate page. It’s contributions from people like you that enable us to conduct research, work on advocacy, and share knowledge and hope on carbon taxing. Thank you.

A “robust” carbon tax — one high enough to significantly change fuel incentives, drive innovation and transform our energy system and culture — is going to generate large amounts of revenue.

Fossil-fuel burning in the U.S. now (pre-pandemic, 2019) emits around 5 billion metric tons of carbon dioxide a year. A carbon tax set at the threshold of robustness — $50 per metric ton — would generate roughly $250 billion a year in new tax proceeds. That’s a significant figure by any measure. It equates to 6-7 percent of total U.S. tax proceeds (currently $3.86 trillion). Spread among the country’s 128.5 million households (as of 2017), it’s $1,950 a year.

Not surprisingly, “what to do with the carbon tax revenue” is the most contentious issue surrounding carbon tax proposals, especially for possible carbon taxes at the federal level where the tax rate could be higher and political divisions are starker.

Revenue-Neutral Carbon-Taxing

Revenue-neutral means that government retains little if any of the tax revenues raised by taxing carbon emissions. Instead, the revenues are returned to the public; with, perhaps, small amounts utilized to assist communities dependent on fossil-fuel extraction and processing to adapt and convert to low- or non-carbon economies.

There are two overlapping but nonetheless disparate reasons for structuring a carbon tax to be revenue-neutral.

One is to appeal to (or appease) voters and elected officials who claim to abhor government and thus don’t want to swell its coffers.

The other is to counter or at least minimize the natural regressivity of carbon taxes by returning revenue in a way that protects the less affluent, while preserving the tax’s price-incentive to reduce emissions. (Keep in mind that wealthier households use more energy, since they generally drive and fly more, have bigger (and sometimes multiple) houses, and buy more stuff that requires energy to manufacture and use.)

There are two primary approaches to returning or recycling the tax revenues.

One approach, discussed below in detail, returns revenues directly through regular (e.g., monthly) “dividends” to all U.S. households or residents. Every resident or household receives an equal, identical slice of the total carbon revenue “pie.” In this approach, which adherents at Citizens Climate Lobby call fee-and-dividend, each individual’s carbon tax is proportional to his or her fossil fuel use, creating an incentive to reduce; but everyone’s dividend is equal and independent of his or her usage, preserving the conservation incentive. Alaska’s dividend program has provided residents with annual allotments from the state’s North Slope oil royalties for three-and-a-half decades.

In the other revenue-return method, each dollar of carbon tax revenue triggers a dollar’s worth of reduction in existing taxes such as the federal payroll tax or corporate income tax — or, on the state level, sales taxes. As carbon-tax revenues are phased in (with the tax rates rising steadily but not too steeply, to allow a smooth transition), existing taxes are phased out. While this “tax-shift” is less direct than the dividend method, it too ensures that the carbon tax is revenue-neutral. It offers other important benefits, as well; for example, reducing payroll taxes could stimulate employment.

To repeat: each individual’s receipt of dividends or tax-shifts is independent of the carbon taxes he or she pays. That is, no person’s benefits are tied to his or her energy consumption and carbon tax “bill.” This separation of benefits from payments preserves the carbon tax’s incentive to reduce use of fossil fuels and emit less CO₂ into the atmosphere. (Of course, it would be extraordinarily cumbersome to calculate an individual’s full carbon tax bill since to some extent the carbon tax would be passed through as part of the costs of various goods and services.)

Revenue-neutrality not only protects the poor, it’s also politically savvy since it offers a way to blunt the “No New Taxes” demand that has held sway in American politics for decades. Returning the carbon tax revenues to the public would also make it easier to raise the tax level over time, a point made nicely by McGill University professor Christopher Ragan in a 2008 Montreal Gazette op-ed, and subsequently borne out by the experience in British Columbia where a revenue-neutral carbon tax was ramped up in four annual increments; that tax remains politically popular and is driving down emissions.

In any event, either of the two “revenue return” approaches — carbon dividends and tax-shifting — can make carbon taxes income-progressive. Because income and energy consumption are strongly correlated, most poor households will get more back in their carbon dividends or via tax-shifting than they will pay in the carbon tax. The overall effect of a carbon tax could thus be equitable and even “progressive” (benefiting lower-earning households).

Revenue-Positive Carbon-Taxing (Investing in Alternatives)

It may seem axiomatic that carbon-tax revenues should fund renewable energy or efficiency upgrades. And that approach always polls well, making it politically attractive.

Nevertheless, climate and energy realities indicate that only a robustly-rising carbon tax can deliver the deep and broad CO2 emission reductions needed to avert climate disaster. Building public support and maintaining the fairness needed for such a substantial carbon tax can most easily be done if all or nearly all of the carbon-tax revenue is returned to taxpayers. See “Making a carbon tax income-progressive” and our blog post: “Which Carbon Tax: Robust or Miniature? (July 7, 2013)”

Dividends

(a/k/a Carbon Dividends or “Green Checks”)

One revenue treatment that is both income-progressive and appealingly straightforward is to return the revenues equally to all U.S. residents. This  so-called “dividend” would be a national version of the Alaska Permanent Fund, which since the 1970s has annually sent all state residents identical checks drawn from earnings on investments made with the state’s North Slope oil royalties. (For a federal carbon tax, the “dividend” checks should be provided quarterly or monthly to keep households ahead of the budget treadmill.)

The dividend approach was so attractive and elegant that the nation’s most energetic and active advocacy organization for carbon taxes has organized around it. That’s the Citizens’ Climate Lobby, which calls its approach carbon fee-and-dividend.

Nevertheless, it seems fair to say (and important to acknowledge) that by 2018, the second year of the Trump administration, fee-and-dividend has run out of political room. Not a single “sitting” (i.e., still in office) Republican member of Congress has publicly endorsed fee-and-dividend, even as a concept, let alone an actual bill. Yet the premise of fee-and-dividend has always been bipartisanship, since Democrats, with their preference for activist government, would accept a revenue-neutral carbon tax such as fee-and-dividend only if it delivered Republican votes.

For a decade, we wrote glowingly about fee and dividend — most recently in 2017 articles in The Nation and the Washington Spectator. We also praised the Climate Leadership Council’s “carbon dividend” proposal and advocacy in those two pieces and in numerous blogs (here, here, and here, inter alia). But as we wrote in June 2018, we believe that the time for carbon dividend proposals has probably passed. We wrote:

The [political] center to which Baker-Shultz (CLC) and fee-and-dividend (CCL) were designed to appeal barely exists. It’s not just that no sitting Republican has endorsed Baker-Shultz or indeed fee-and-dividend in any form. It’s also that the Democratic majority that will be needed to pass a carbon tax bill appears unlikely to rally around a revenue-neutral carbon tax, whether it’s organized as fee-and-dividend or some form of tax swap.

Economic Progressivity of Fee-and-Dividend

In 2016 CCL released a detailed paper examining how a carbon fee-and-dividend would impact U.S. households. The study took into account geographic variations in electricity sources and gasoline use and drew on a database of carbon intensity of expenditures for 5.8 million households to analyze the net effect of returning revenue to households on a modified per capita basis. Here are the major results:

• 53% of households (and 58% of individuals) would receive more in dividend payments than they would spend due to higher fossil fuel prices.
• Another 19% of households would incur only a slight loss, defined as a net loss no larger than one-fifth of one percent of pre-tax income.
• Nearly 90% of households below the poverty line would benefit an average of $311, an increase of roughly 2.8% of pre-tax income.
• In contrast, the net loss for the top quintile of households would average $-322 or only -0.18% of pre-tax income.

Notably, these findings support a dividend plan’s ability to transform a carbon tax into a progressive policy that neutralizes the burden that lower-income households would otherwise face, directly and indirectly, due to higher fuel prices. CTC advocates a progressive distributional outcome for both pragmatic and ethical reasons: pragmatically, because a carbon tax will require broad, sustained, public and political support; and ethically, because it’s not tenable to solve the climate crisis on the backs of those who can least afford it.

A Caveat — CBO’s “haircut”

The non-partisan Congressional Budget Office routinely “scores” members’ bills for their prospective impact on tax revenues. To streamline its analyses, CBO long ago settled the so-called “CBO haircut” by which it assumes that one-quarter of indirectly raised revenues would need to be allocated from the tax proceeds in question in order to make up for reduced tax revenues collected from conventional sources such as personal or corporate income taxes. But modeling of carbon tax proposals consistently finds that when revenue is strategically returned by reducing other taxes that tend to slow down economic activity, the net negative impacts are much lower than CBO’s 25% assumption and in some cases may be eliminated altogether. While returning revenue as “dividends” (which economists call “lump-sum rebates”) offers less potential to reduce economic drag than tax shifts, CBO’s assumption still seems like an over-estimate.

In any event, rigid application of the 25% CBO haircut could, on paper at least — and, likely, in Congressional deliberations — limit the carbon tax revenue perceived to be available for “dividends” to 75%. Yet even with this reduced fraction of revenue, returning carbon tax revenue via a direct dividend represents a simple and income-progressive means to make carbon taxes distributionally fair; though with the haircut, the share of households reaping a net benefit via an equal 75% dividend would be lower than the 58% of individuals mentioned above.

Related CTC blog posts

• The Carbon Tax Revenue Menu (6/10/2011)
• Should Carbon Pricing Advocates Support the Cap-and-Dividend Bill? (12/2/2010)
• Scientist James Hansen Proposes “People’s Climate Stewardship Act”: A Simple Carbon Fee with Revenue Returned to Americans (4/25/2010)
• Progressive Democrats Say: “Cut Out Wall Street — Price Carbon Directly and Recycle Revenue to Households.” (10/20/2009)
• Back to Plan A: The Revenue-Neutral Carbon Tax (7/6/2009)

Related news reports and opinion pieces

• Alaska’s Permanent Dividend Fund — A policy ripe for export (Bangor Daily News, 6/20/2011)
• James Hansen Rails Against Cap-and-Trade in Open Letter, Advocates Fee-and-Dividend to Reduce Carbon Emissions (The Guardian, 1/12/2010)
• Cap and Fade (James Hansen, NYT op-ed, 12/6/2009)
• How CBO budget scoring devalues efficiency (Dave Roberts, Grist 10/15/2009)

Cogent opinion pieces by dividend proponent James K. Boyce (U-Mass, Amherst)

• Does Biden’s insurance policy for the climate go far enough? (The Hill, 2/26/2021)
• Carbon Dividends: The Bipartisan Key to Climate Policy? (Institute for New Economic Thinking, 2/17/2017)
• The Carbon Dividend (New York Times, July 29, 2014)

Tax-Shifting

The distribution of carbon tax burdens creates an opportunity for “progressive tax-shifting,” in which a portion of carbon tax revenue is dedicated to reducing regressive taxes such as the payroll tax (at the federal level) or sales taxes (at the state level). An early proponent of such a carbon tax shift was Al Gore, with his exhortation to “Tax what we burn, not what we earn.” Shifting taxes away from payroll and/or sales taxes and onto carbon pollution could raise, not lower, the after-tax incomes of a majority of below-median-income households, giving this approach a net progressive effect.

In addition to this potential progressive effect of tax shifting, a wide range of economists, [including Lawrence Goulder, Roberton Williams & Ian Parry, Gilbert Metcalf & David Weisbach, Alan Viard, Robert Shapiro, Donald Marron & Eric Toder] have concluded that use of revenue to reduce other taxes would improve the overall efficiency of the economy, for example, by removing burdens on work.

In October 2007, the Brookings Institution published a A Proposal for a U.S. Carbon Tax Swap — An Equitable Tax Reform to Address Global Climate Change by Tufts University economics professor Gilbert E. Metcalf, describing a national carbon tax paired with an income tax credit for payroll taxes paid. Metcalf assessed the impact of a tax of $15 per metric ton of carbon dioxide and five major greenhouse gases. Revenues would be used to credit payroll tax paid on the first $3,660 of earnings per worker. Metcalf showed that such a tax swap would be both revenue-neutral and distributionally-neutral. (Harvard professor and former Bush Administration economist Gregory Mankiw mentioned the Metcalf paper in a Sept. 2007 New York Times op-ed, discussed on our blog.) Rep. John Larson (D-CT) adopted Metcalf’s framework for his “America’s Energy Security Trust Fund Act,” discussed on our Bills page.

More recent analysis has confirmed the importance of carbon tax revenue wisely; using it to reduce other “distortionary” taxes can offer large enough efficiency benefits to reduce or even possibly eliminate the economic drag that a carbon tax would otherwise create. In Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts (2013) researchers from Resources for the Future found that using carbon tax revenue to reduce corporate income tax rates offers large enough efficiency benefits to more than overcome the efficiency loss of a carbon tax. The next best option is using revenue to cut wage taxes, while using revenue to cutting other consumption taxes is somewhat less efficient. Finally, refunding carbon tax revenue in a “lump sum rebate” (dividend) offers the least economic efficiency benefit.

Reducing the top marginal corporate income tax rate has been articulated as a goal by leaders of both major political parties. In an effort to attract Republican interest, Rep. John Delaney (D-MD) has introduced a carbon tax measure that would devote half its revenue to corporate income tax reduction.

Nevertheless, the growing economics literature on carbon taxes suggests a strong a tradeoff between the efficiency benefits of using carbon tax revenue to cut taxes on capital (as the Delaney proposal would do) and the distributional benefits of cutting taxes on labor (as Rep. Larson’s proposal would).

Related CTC blog posts and articles

• British Columbia’s Carbon Tax Architects Speak (2015).
• The Carbon Tax Revenue Menu, outlining the benefits of various revenue options (2011).
• Carbon Tax Offers Super Powers to Super-Committee, discussing potential for a carbon tax to reduce the deficit (2011).
• Midterm Advice for Congress: Tax Carbon Instead of Jobs (Robert Shapiro, Huffington Post, 2010).
• Capitol Hill Briefing on Carbon Taxes Draws Overflow Crowd, Rep. John Larson (D-CT) led off CTC’s event, articulating the benefits of a taxing carbon pollution while cutting wage taxes (12/9/08).

Related journal articles and papers

• Taxing Carbon and Recycling the Revenue: Who Wins and Loses? (Donald Marron, Eric Toder, and Lydia Austin, Urban-Brookings Tax Policy Center, Nov. 2015).
• Tax Policy Issues in Designing a Carbon Tax (Donald B. Marron and Eric J. Toder, Urban-Brookings Tax Policy Center, 2014).
• Getting to an Efficient Carbon Tax: How the Revenue is Used Matters (Jared Carbone, Richard D. Morgenstern, Roberton C. Williams III, and Dallas Burtraw, Resources for the Future, 2014).
• A Carbon Tax in Broader U.S. Fiscal Reform: Design and Distributional Issues, Adele Morris (Brookings) and Aparna Mathur (American Enterprise Institute), C2ES, 2014).
• Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution? (MIT, 2012).
• The Potential Role of a Carbon Tax in U.S. Fiscal Reform (Brookings, 2012).
• Fiscal Policy to Mitigate Climate Change (IMF, 2012).
• How Climate Policy Could Address Fiscal Shortfalls (Adele Morris & Ted Gayer, Brookings, 2010).
• Addressing Climate Change Without Impairing the US Economy (Robert Shapiro, U.S. Climate Task Force, 2009).
• A Proposal for a U.S. Carbon Tax Swap (Gilbert Metcalf, Brookings, 2007).