Lindsay Kalter
GHG Monitor
3/1/13
Advocates from both sides of the carbon tax debate received backing this week from two separate reports, each making opposite claims about the potential effects of a carbon pricing scheme. One report, released by the National Association of Manufacturers (NAM) and conducted by NERA Economic Consulting, asserts that such a levy would wreak havoc on both the economy and employment rates. The other study, released by the Brookings Institution, says a carbon tax could serve as a catalyst for economic growth, deficit-reduction and a cut in costs incurred by “redundant and inefficient regulation.”
The NAM report examines the potential effects of two tax cases: one assuming a $20 per metric ton tax that increases by 4 percent annually, and one that begins with the same $20 tax with an additional goal of an 80 percent reduction in CO2 emissions from 2005 levels by 2053. The report projects that the former scenario would reduce GDP by about 0.4 percent—or $60 billion—from baseline levels and about $230 billion in 2053. “The negative impacts of the 80 percent [latter case] on GDP are substantially greater in the later time periods, reaching 3.6 percent (almost $1.4 trillion) by 2053,” the report concludes.
The NAM analysis states that employment wages would drop because companies would be subject to higher costs, resulting in an income-decline of up to 8.5 percent and “job-equivalent losses that range from about 1.5 million job-equivalents in 2013.” Despite the predicted financial burdens, the report does project that the first tax case would reduce carbon dioxide emissions reductions by 1,800 metric tons by 2053, while the 80 percent reduction case would decrease emissions by 71 percent relative to 2005 levels. However, according to the authors, the potential economic strain would outweigh the positive effects of reduced emissions. “These results indicate that the net aggregate effects of the two carbon tax cases on the U.S. economy and on U.S. household consumption would be negative,” the report states. “Our analysis of the economy-wide impacts of the policy indicates that although the net carbon tax revenues are positive in all years, their fiscal benefits to the economy are not large enough to outweigh the direct costs that the carbon tax imposes on the economy.”
Brookings: Use Carbon Tax Revenue for Corporate Tax Reform
Meanwhile, the analysis released by the Brookings Institution asserts that a “modest” tax of $16 per ton of CO2 equivalent would provide a feasible starting point, eventually rising 4 percent over inflation annually until 2050. “The tax would be a simple excise tax on the carbon content of fossil fuels combusted in the United States and on select other GHG sources,” says the report. “This amount, $16 per ton of CO2, translates to about $0.16 per gallon of gasoline and $30 per short ton of coal.” The plan would also cut roughly $6 billion in energy subsidies each year, the report says.
The report proposes that during the tax’s fledgling stages, the revenue be used for corporate income tax reform, echoing various other analyses promoting the reduction of corporate income taxes to reduce economic costs. This, Brookings says, would “maximize the near term efficiency gains of the tax reform by focusing the revenue on lowering one of the most distortionary tax instruments while preserving its role.” The report states that the tax would raise roughly $88 billion in the first year and rise to almost $200 billion two decades later.
Prospects for Carbon Tax Remain Bleak in Congress
The contrast between the two reports parallels the chasm that currently exists in Congress on the issue of carbon taxes. The President and most lawmakers have largely backed away from the idea of a carbon tax in recent months, but some Democratic lawmakers have ramped up calls for a climate plan, especially following Obama’s State of the Union address last month. Sens. Bernie Sanders (I-Vt.) and Barbara Boxer (D-Calif.) unveiled legislation in recent weeks that would set a $20 price on carbon emissions on 85 percent of the country’s largest sources of pollution while setting a long-term emissions reduction goal of 80 percent below 2005 levels by mid-century. But with long-term budget issues looming, prospects of passing such legislation are still bleak. Sanders contested NAM’s carbon tax report in a press release this week. “The price that America cannot afford to pay is the price of doing nothing to reverse global warming,” he said.
