Economic Impacts of Pricing Carbon

Economic Impacts of Pricing Carbon

Laser Talk

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

Answer:  A properly designed carbon policy will be good for the economy. Carbon fee and dividend legislation [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 2020 analysis of carbon pricing in the EU [5] found that it slightly increased both GDP and job growth.

Neither of those studies accounted for how much money we will save by avoiding fossil fuel damages. [6 ,7] According to an ongoing government review (as of Dec 2021), every metric ton of carbon dioxide (CO2) emitted now will cost tomorrow’s economy from $14 to $156, and that cost could nearly double for CO2 emitted in 2050. [8] We Americans 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 price on carbon will depress the economy, they fail to consider how recycling the money back to U.S. households changes the results, and also fail to account for the huge costs of doing nothing.

In a Nutshell: Regardless of what opponents of carbon pricing might say, evidence shows that a carbon fee that sends carbon cash-back payments to households will actually improve the economy and create jobs. Savings in public health alone will be far more than the costs of the policy.

Related: The REMI Study.

  1. “H.R.2307 – Energy Innovation and Carbon Dividend Act of 2021.” Library of Congress (01 Apr 2021).
  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.” (17 Jan 2019).
  4. Kopp, R.J. “Economic Growth and Carbon Taxes.” Resources for the Future (13 Sep 2013).
  5. Metcalf, G.E. and J.H. Stock. “The Macroeconomic Impact of Europe’s Carbon Taxes.” Working Paper 27488, National Bureau of Economic Research (Jul 2020).
  6. “Billion-Dollar Weather and Climate Disasters: Summary Stats.” NOAA National Centers for Environmental Information (2018).
  7. Cho, R. “Social Cost of Carbon: What Is It, and Why Do We Need to Calculate It?.” Columbia Climate School (1 Apr 2021).
  8. “Technical Support  Document:  Social  Cost  of  Carbon and Nitrous Oxide: Interim Estimates under  Executive  Order  13990.” Interagency Working Group on Social Cost of Greenhouse Gases. (Feb 2021).
  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).

This page was last updated on 12/05/21 at 21:30 CST.