NCPA - National Center for Policy Analysis

The Carbon Tax: A Devastating Proposition

January 21, 2013

Implementing a carbon tax may seem like an appropriate measure to both raise revenues and support an environmental agenda keen on reducing greenhouse emissions, but a new carbon tax would trigger a rise in unemployment while failing to deliver on its goal of raising revenue, say David Kreutzer and Nicolas Loris of the Heritage Foundation.

  • Most of America's energy needs are met through carbon-emitting fossil fuels, meaning that any new regulations would result in an increase in energy costs.
  • Higher energy costs disproportionately affect the poor, who spend a larger percentage of their monthly income covering utilities.
  • Businesses paying higher energy prices would pass those expenses on to the consumer, which would lower the power of consumer spending and ultimately lead to fewer jobs.
  • A 2012 analysis by the U.S. Energy Information Administration (EIA) of a $25 carbon tax that rises 5 percent a year found that a family of four would incur $1,900 in additional expenses by 2016, while gasoline prices would rise up to $0.50 per gallon.

In addition to the EIA estimate that a carbon tax would result in a loss of more than 1 million jobs, a carbon tax is improperly targeted. Reducing or eliminating a developed country's greenhouse gases would only slightly reduce overall global emissions because developing countries like Brazil, Russia, India and China (BRIC) are responsible for the most pollution.

  • BRIC countries desire cheap energy and would be unlikely to follow America's greenhouse lead.
  • The suggestion that a new carbon tax could be offset by reducing other taxes is unlikely to gain any ground as Washington struggles for sources of income.
  • An alternative suggestion holds that a carbon tax would eliminate any needs for the regulation of carbon dioxide. If this were true, cap-and-trade would have been successful.

After considering these facts, a carbon tax seems illogical, a conclusion echoed by two recent bipartisan resolutions that draw attention to the potential negative economic and environmental repercussions of implementing a carbon tax scheme.

Source: David Kreutzer and Nicole Loris, "Carbon Tax Would Raise Unemployment, Not Swap Revenue," Heritage Foundation, January 8, 2013.


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