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A Tax to Save the US $100 billion a Year and Solve Global Warming?

10 Pages Posted: 4 Oct 2005  

Jayanta Sen

University of Maryland, University College

Date Written: September 1, 2005


The position of the current US administration is that moves to reduce consumption of gas (like the Kyoto Treaty), will harm the US economy. On the contrary I show that a tax on crude would transfer wealth of $100+ billion a year from foreign governments to the US consumers, thus providing a major economic stimulus to the economy while at the same time reducing consumption of gas. Over the past decade crude oil prices have increased from $12 (1998) to over $65 a barrel. The amount of net oil exported by importing countries is about 28 million barrels a day. With 1998 prices as a reference, this translates to an additional wealth transfer of $1.32 billion a day, or $480 billion a year. If the supply of oil is inelastic, then an increase in tax by the governments of importing countries would push up oil prices and decrease the wealth transfer. For a range of demand and supply elasticities that I study, the wealth transfer savings for the United States (which has about one-third of global oil imports) should be in the range of $108 to $152 billion a year. The new tax revenues to the US government from tax on imported oil should be $160 billion to $250 billion a year. This money can be returned to the US consumers as a lump sum, thus providing the economic stimulus. The reduction in crude oil consumption ranges from 7.13% to 10.30% while providing a stimulus (defined as additional purchasing power to consumers) to the economy of $95 billion to $133 billion a year.

Keywords: global warming, trade, deficit, taxes, international, energy

JEL Classification: A10, E60, E61, E62, E63, F13, F40, Q20, Q25, Q28

Suggested Citation

Sen, Jayanta, A Tax to Save the US $100 billion a Year and Solve Global Warming? (September 1, 2005). Available at SSRN: or

Jayanta Sen (Contact Author)

University of Maryland, University College ( email )

United States


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