Economic Impacts of Pricing Carbon

Laser Talk

This page was updated on 05/04/19 at 16:00 CDT.

Question:  Won’t a carbon fee be bad for the economy?

Answer:  A properly designed carbon policy will be good for the economy. The Energy Innovation and Carbon Dividend Act [1] will have a positive impact on our well-being, especially if we consider the avoided costs of climate change and the health benefits from reduced air pollution.

As far back as 2009, 98 percent of economists said a price on carbon would promote efficiency and innovation, [2] and 10 years later, support for a carbon fee and dividend was declared by 46 of the world’s premier economists. [3] A 2013 review by Resources for The Future [4] held that the impact of various carbon tax plans on GDP would be ‘trivially small,’ and a 2014 analysis of a carbon fee and dividend plan by REMI [5] predicted that over 20 years, it would actually increase job growth.

Neither of those studies accounted for how much money we will save by avoiding fossil fuel damages. [6 ,7] 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 for CO2 emitted in 2050. [8] We currently emit over 160 metric tons of CO2 per second. [9]

If we include the health costs of fossil fuel air pollution, which have been estimated at $188 billion annually, [10] it’s clear that burning fossil fuels is already costing our economy upwards of $250 billion a year. This was confirmed by the Fourth National Climate Assessment [11] issued in November 2018.

When someone claims a carbon 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. H.R.763 – The Energy Innovation and Carbon Dividend Act of 2019. Congress.gov (24 Jan 2019).
  2. 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).
  3. Akerlof, G., et al. “Economists’ Statement on Carbon Dividends.” econstatement.org (17 Jan 2019).
  4. Kopp, R.J. “Economic Growth and Carbon Taxes.” Resources for the Future (13 Sep 2013).
  5. 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).
  6. “Billion-Dollar Weather and Climate Disasters: Summary Stats.” NOAA National Centers for Environmental Information (2018).
  7. “The Social Cost of Carbon.” U.S. Environmental Protection Agency (snapshot 19 Jan 2017).
  8. “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis.” Interagency Working Group on Social Cost of Greenhouse Gases. (Aug 2016).
  9. “U.S. Energy-Related Carbon Dioxide Emissions, 2016.” U.S. Energy Information Administration (5 Oct 2017).
  10. “The Economic Case for Climate Action in the United States.” Universal Ecological Fund (Sep 2017).
  11. Fourth National Climate Assessment (NCA4), Volume II. U.S. Global Change Research Program (23 Nov 2018).

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