The Case Against a U.S. Carbon Tax
28 Pages Posted: 1 Dec 2016
Date Written: October 17, 2016
Some proponents of federal policies to combat climate change are arguing for a federal carbon tax (or similar type of “carbon price”). Within conservative and libertarian circles, some proponents claim that a revenue-neutral carbon tax “swap” could deliver a double dividend, reducing climate change while shifting some of the nation’s tax burden onto carbon emissions, which supposedly would spur the economy.
This analysis describes several serious problems with those claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as United Nations (UN) and Obama administration reports — reveal that the case for a U.S. carbon tax is weaker than the carbon tax proponents claim.
Future economic damages from carbon dioxide emissions can only be estimated in conjunction with forecasts of climate change. But recent history shows those forecasts are in flux, with an increasing number of forecasts of less warming appearing in the scientific literature in the last four years. Additionally, we show some rather stark evidence that the family of models used by the UN’s Intergovernmental Panel on Climate Change (IPCC) is experiencing a profound failure that greatly reduces their forecast utility.
If the case for emission cutbacks is weaker than the public has been led to believe, the claim of a double dividend is on even shakier ground. There really is a consensus in this literature, and it is that carbon taxes cause more economic damage than generic taxes do on labor or capital, so that in general even a revenue-neutral carbon tax swap would probably reduce economic growth.
Keywords: Climate change, global warming, climate policy
JEL Classification: Q54, Q58
Suggested Citation: Suggested Citation