Economic Impacts of Pricing Carbon

Laser Talk

This page was updated on 01/27/19 at 21:05 CST.

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.

An impressive 98 percent of economists agree that a price on carbon will promote efficiency and innovation. [2] A 2013 review by Resources for The Future [3] held that the impact of various carbon tax plans on GDP would be ‘trivially small,’ and a 2014 analysis of the Carbon Fee and Dividend by REMI [4] 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. [5] 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. [6] We currently emit over 160 metric tons of CO2 per second. [7] In 2017, a string of climate-related disasters cost our economy over $300 billion,

Include the health costs of fossil fuel air pollution, which have been estimated at $188 billion annually, [8] and 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 [9] issued by our government 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. Kopp, R.J. “Economic Growth and Carbon Taxes.” Resources for the Future (13 Sep 2013).
  4. 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).
  5. “Billion-Dollar Weather and Climate Disasters: Summary Stats.” NOAA National Centers for Environmental Information (2018).
  6. “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis.” Interagency Working Group on Social Cost of Greenhouse Gases. (Aug 2016).
  7. “U.S. Energy-Related Carbon Dioxide Emissions, 2016.” U.S. Energy Information Administration (5 Oct 2017).
  8. “The Economic Case for Climate Action in the United States.” Universal Ecological Fund (Sep 2017).
  9. Fourth National Climate Assessment (NCA4), Volume II. U.S. Global Change Research Program (23 Nov 2018).

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