NCPA - National Center for Policy Analysis

A Carbon Tax Would Harm U.S. Competitiveness and Low-Income Americans

August 30, 2012

Environmentalists have long championed policies that aim at restricting greenhouse gas emissions (GHGs). While the cap-and-trade bill (which limited the amount of GHGs a producer could emit) failed in the Senate, a new proposal is currently at the forefront of environmental discussions: a carbon tax, says Derrick Morgan, vice president for domestic and economic policy at the Heritage Foundation.

A carbon tax would be unlike a cap-and-trade system in that it does not place a limit on how much emissions a producer can emit. However, anyone that wishes to pollute would be taxed on the amount of emissions they produce with the goal of discouraging industries from emitting carbon dioxide (CO2) and other GHGs.

But enacting a carbon tax would do no good for the country, as it would compromise the manufacturing industry, hurt the economy and disproportionately affect low-income households. 

  • Manufacturing makes up 12.2 percent of U.S. gross domestic product (GDP).
  • A carbon tax would raise prices on energy inputs and destroy manufacturing jobs, thus increasing unemployment rate.
  • Furthermore, the poor spend a higher proportion of their income on energy usage and a carbon tax would hurt these families the most.
  • In addition, the revenue from the carbon tax would most likely be used to alleviate the burden that low-income families face, which goes against the popular sentiment that a carbon tax would be a way for the government to generate revenue for other activities.

Proponents of the tax argue that an adjustment tax can be imposed on goods from countries without a carbon tax to level the playing field. However, such a tax risks trade wars with countries trying to export their goods to the United States.

The hit to U.S. manufacturing and the rest of the economy would be in vain, as such a tax would do nothing to help the environment.

  • Unilateral action by the United States does not impact global CO2 levels -- it would only decrease 25 parts per million.
  • China's emissions doubled from 3.4 gross tons to 7 gross tons between 2000 and 2008.
  • Furthermore, a carbon tax would accelerate emission output as energy-intensive industries relocate to other countries where they can freely emit GHGs.

Source: Derrick Morgan, "A Carbon Tax Would Harm U.S. Competitiveness and Low-Income Americans without Helping the Environment," Heritage Foundation, August 21, 2012.


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