Economic Impacts of Pricing Carbon

Laser Talk

This page was updated on 05/13/18 17:41 CDT.

Question:  Won’t a Carbon Fee be bad for the economy?

Answer: A properly designed carbon policy will not depress the economy. CCL’s Carbon Fee and Dividend proposal is predicted to strengthen the economy and create jobs. The positive impact on our welfare will be even larger if we consider the avoided costs of climate change and the health benefits from reduced air pollution.

An impressive 98 percent of economists agree that a price on carbon will promote efficiency and innovation. [1] A 2013 review by Resources for The Future [2] held that the impact of various carbon tax plans on Gross Domestic Product (GDP) would be “trivially small,” and a 2014 analysis of the Carbon Fee and Dividend by REMI [3] predicted that over 20 years, it would actually increase U.S. GDP by $1.4 trillion.

But none of these studies account for how much money we will save by avoiding damages from fossil fuels. In 2017, a string of climate-related disasters cost our economy over $300 billion. [4] According to a 2016 government report, every metric ton of carbon dioxide (CO2) emitted now will cost tomorrow’s economy from $12 to $120, and that cost could double by 2050. [5] We currently emit over 160 metric tons of CO2 per second. [6]

Include the health costs of fossil fuel air pollution, which have been estimated at $188 billion annually, [7] and it’s clear that burning fossil fuels is already costing our economy upwards of $250 billion a year.

When someone claims a carbon fee or tax will depress the economy, they fail to consider how returning the money back to U.S. households changes the results, and also fail to account for the huge costs of doing nothing.

Related: The REMI Study.

  1. Holladay, J.S., J. Horne, and J. Schwartz. “Economists and Climate Change: Consensus and Open Questions.” Policy Brief No. 5. New York University School of Law (Nov 2009).
  2. Kopp, R.J. “Economic Growth and Carbon Taxes.” Resources for the Future (13 Sep 2013).
  3. Nystrom, S. and P. Luckow. “The Economic, Climate, Fiscal, Power, and Demographic Impact of a National Fee-and-Dividend Carbon Tax.” Regional Economic Models, Inc. and Synapse, Inc. (9 June 2014).
  4. “Billion-Dollar Weather and Climate Disasters: Summary Stats.” NOAA National Centers for Environmental Information (2018).
  5. “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis.” Interagency Working Group on Social Cost of Greenhouse Gases. (Aug 2016).
  6. “U.S. Energy-Related Carbon Dioxide Emissions, 2016.” U.S. Energy Information Administration (5 Oct 2017).
  7. “The Economic Case for Climate Action in the United States.” Universal Ecological Fund (Sep 2017).

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