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The Realities of a Carbon Tax

By Matt Patterson, August 24, 2021

Over the past 30 years, climate activists (and some elected officials) have put forth the idea of placing a fee on the extraction of fuel by suppliers and processors in an attempt to curb fossil fuel use and decrease carbon emissions. Known as a “carbon tax,” the Carbon Tax Center explains that the tax is “the core policy for reducing and eventually eliminating the use of fossil fuels whose combustion is destabilizing and destroying our climate.”[i] The idea is that, if the tax is set high enough, it will become “a powerful monetary disincentive that motivates switches to clean energy across the economy, simply by making it more economically rewarding to move to non-carbon fuels and energy efficiency.”[ii]

Robinson Meyer, writing in The Atlantic, suggests that “Some supporters argue that the tax is one of very few climate policies that can survive a conservative Supreme Court, because the Constitution clearly empowers Congress to levy taxes but may not allow other types of regulation.”[iii] Other proponents of the tax argue that it offers a market-based approach to reducing emissions and facilitating increased “green energy” usage:

Utilizing existing tax collection mechanisms, a carbon tax is paid “upstream,” i.e., at the point where fuels are extracted from the Earth and put into the stream of commerce, or imported into the U.S. Fuel suppliers and processors are free to pass along the cost of the tax to the extent that market conditions allow. Placing a tax on carbon gives consumers and producers a monetary incentive to reduce their carbon dioxide emissions.[iv]

On paper, a carbon tax may appeal to those who would like to see action taken on carbon emissions but are hesitant to implement an outright ban of fossil fuel usage. The reality, however, is that this regressive tax would negatively impact the American economy, disproportionately harm middle and low-income households, and do very little to improve the climate. Additionally, a carbon tax is unnecessary in a market that currently rewards energy innovation and emissions reduction.

In the United States, 81 percent of energy consumption comes from fossil fuels.[v] An additional tax on these fuels, which will undoubtedly be passed down to consumers (that’s the whole point of the tax, after all), would be devastating to any economy. The Conservative Coalition for Climate Solutions (C3) estimates that a carbon tax would lead to a loss of 1.4 million jobs nationwide and an aggregate GDP loss of $3.9 trillion.[vi] In a state like Texas, which relies heavily on oil and gas production to support the state economy, the disastrous effects would be amplified and likely cause smaller, independent producers to wither. The supposed “gains” from such a tax would be dwarfed by the massive economic downturn that would affect every industry in the U.S. It is important, also, to remember that many of these industries are voluntarily reducing emissions without any mandate or tax.

A carbon tax would have the largest impact on individuals and families, especially middle and low-income households. If implemented, energy producers and suppliers would pass the costs down to the consumer, increasing the cost of utilities. In 1992 President Clinton proposed a “BTU tax”, similar to a carbon tax in that it taxes fuel sources based on their heat content. According to The Atlantic, “Heavy industry rallied against it, and its simplicity became a liability: Utilities insisted that the tax appear as a line-item charge on every customer’s power bill. By 1994, the BTU tax was dead."[vii] Obviously, elected officials knew that there would be strong opposition to the tax once consumers realized its impact on their pocketbooks. The increased costs would hit low-income and minority households the hardest, groups that spend more of their income on energy bills than wealthy households, according to research from the American Council for an Energy-Efficient Economy (ACEEE).[viii] C3 predicts that a carbon tax would increase home electricity costs by between 12 and 14 percent, and “result in a total income loss of $40,000 for a family of four.”[ix] Families living paycheck to paycheck would simply be unable to afford the energy to heat and cool their homes. The tax would also have a ripple effect, causing price increases in goods from groceries to clothes.[x]

The impacts of a carbon tax would be devasting, but at least climate change would be stopped in its tracks. Right? Wrong. The Heritage Foundation makes this point clear: “No doubt, carbon dioxide emissions would decline—if you tax something, you’ll get less of it. But the impact on global temperatures would be negligible by the end of the century, even if you assume the most catastrophic scenario.”[xi]

Implementing a carbon tax in the United States would not achieve much in reducing emissions on a global scale, either. Consider China, the largest emitter of carbon in the world, which produces about 28 percent of the world’s total emissions.[xii] In 2020, coal (the largest carbon-emitting fuel source) accounted for over 56 percent of China’s domestic energy generation and the nation “built more than triple the amount of new coal power capacity as the rest of the world combined.”[xiii] China, and other developing nations who rely heavily on carbon emitting fuels, will continue to increase emissions in the near future. It would be pointless to significantly harm the American economy for a negligible drop in global emissions. Furthermore, there is no evidence to suggest that a carbon tax would help reduce emissions at a faster rate than without the tax. Research from the International Energy Agency (IEA) shows that the European Union, which has many countries that implement a carbon tax, has reduced emissions at a slower rate than the United States, which had the largest decline of any country in carbon emissions in 2019.[xiv]

Contrary to what supporters of a carbon tax might say, it is not a “market-based approach” that helps facilitate a transition to clean energy. It is market manipulation designed to punish carbon fuel users and force businesses and families to pay a higher cost to keep the lights on. Just as the United Nations’ International Panel on Climate Change (IPCC) report seeks to use a false sense of a climate catastrophe to influence policymakers, a carbon tax attempts to sell a false promise of a market solution to a manufactured crisis. Actual free-market driven solutions, not hyperbolic, regressive tax schemes, will help reduce emissions and protect American taxpayers.

[i] [ii] Ibid. [iii] [iv] [v] [vi] [vii] [viii] [ix] [x] [xi] Ibid. [xii] [xiii] [xiv]

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