Administrative Cost Laser Talk

Question:  Isn’t it going to cost a lot to administer the Energy Innovation & Carbon Dividend Act?

Answer:  No. The simplicity and transparency of its design keeps costs very low compared to other federal programs like the IRS and Social Security. Collecting the fee is simple because there are already extensive tax collection processes in place for the fee-paying companies, and there are not that many of them. Paying the carbon dividend is simple because every adult gets the same amount, as does every child; names and addresses come from existing tax records; there is no need for costly means testing; and over 90 percent of the payments can be handled through electronic bank deposits. [1]

Real-world experience from abroad supports the view that administrative costs of carbon fees are low, with reported costs between 0.1 and 1 percent of revenue. [2]

CCL has made a detailed estimate by comparing the IRS budget of $11.4 billion [3] with similar functions in the CF&D program. For completeness, we considered startup costs, amortization period, population growth, [4] and a revenue forecast based on the emissions reduction schedule specified in the Act. [5]

This gave us annual administrative costs of about $4 to $5 billion per year, which is about 6 percent of revenues in year one, but as revenues grow along with the fee, it drops to only about 1.4 percent by year 10. It does rise again as emissions get very low, cutting the carbon fees that are collected, but never exceeds 3 percent of revenues.

The Act’s administrative costs would be taken from program revenues, so there is no additional cost to the federal government.

Click here for supporting graphics.

Related: Carbon Fee versus Cap and Trade.

1. Lerman, A.H. “Paying Dividends From Carbon Fee Revenue To American Residents.” Working Paper commissioned by CCL (updated Oct 2017).
2. Carl, J. and D. Fedor. “Tracking global carbon revenues: A survey of carbon taxes versus cap-and-trade in the real world.” Energy Policy 96, 50-77. (Sep 2018).
3. “Budget in Brief – Internal Revenue Service FY2018.” (Mar 2018).
4. “2014 National Population Projections Tables.” U.S. Census Bureau (2014).
5. “H.R.763 – Energy Innovation and Carbon Dividend Act of 2019.” Library of Congress (24 Jan 2019).

This page was last updated on 08/26/19 at 22:58 CDT.