Climate at a Glance: Carbon Dioxide Taxes

Illustration by Anthony Watts. Base image licensed from pexels.com

View this page in a printable PDF here:

Key Takeaways:

  • A “revenue neutral” carbon dioxide tax is devised to be revenue neutral for government and only for government.
  • A “revenue neutral” carbon dioxide tax is not revenue neutral for American households.
  • Nearly all advocates of a carbon dioxide tax seek to impose the tax in addition to other government restrictions on carbon dioxide, not in place of them.
  • “Mainstream” carbon dioxide taxes of $50 per metric ton would raise gasoline prices 44 cents per gallon at minimum.
  • “Mainstream” carbon dioxide taxes of $50 per metric ton would raise natural gas and coal priceswhich power nearly two-thirds of U.S. electricity – 62% and 330%, respectively.

Short Summary:

A carbon dioxide tax is a fee imposed on the use of carbon based fuels, such as coal, oil, and natural gas.1 Although carbon dioxide taxes have often been touted as “revenue neutral,” the purpose of a carbon dioxide tax is to make conventional energy so expensive that people will be coerced into buying wind and solar power, which is already very expensive.

Under a “revenue-neutral” carbon dioxide tax system, energy bills and prices for goods and services throughout the economy increase dramatically because industries and individuals rely increasingly more on expensive wind and solar power. If people were to purchase expensive wind and solar power exclusively, there wouldn’t be any carbon dioxide taxes to collect, so no revenue would be collected. When that happens, the carbon dioxide tax becomes revenue neutral for government but inflicts substantial costs on households.

Analysts have repeatedly found that carbon dioxide taxes would raise energy costs, affecting all consumers. For example, researchers Marc Hafstead and Paul Picciano conducted an analysis that estimated carbon dioxide taxes of $50 per metric ton would raise gasoline prices 44 cents per gallon in the United States.3 (See Figure 1.) The same tax would raise natural gas and coal prices—which account for nearly two-thirds of U.S. electricity generation— by 62 percent and 330 percent, respectively.

Figure 1. Economic Effects of Carbon Dioxide Taxes

Figure 1. The costs added to common home and business fuels after the imposition of a carbon
dioxide tax of $50/ton, based on common fuel prices in 2015. Source: Marc Hafstead and Paul
Picciano, “Calculating Various Fuel Prices under a Carbon Tax,” resources.org, November 28, 2017,
https://www.resources.org/common-resources/calculating-various-fuel-prices-under-a-carbon-tax

References:

  1. Tax Foundation, “What Is a Carbon Tax?,” Tax Basics, taxfoundation.org, accessed
    August 15, 2021, https://taxfoundation.org/tax-basics/carbon-tax
  2. H. Sterling Burnett, “There Is No Revenue-Neutral Carbon-Dioxide Tax,” heartland.org,
    The Heartland Institute, December 4, 2020, https://www.heartland.org/news-opinion/
    news/there-is-no-revenue-neutral-carbon-dioxide-tax
  3. Marc Hafstead and Paul Picciano, “Calculating Various Fuel Prices under a Carbon Tax,”
    resources.org, November 28, 2017, https://www.resources.org/common-resources/
    calculating-various-fuel-prices-under-a-carbon-tax

Climate At A Glance is a Project of The Heartland Institute

Email: think@heartland.org