Heritage Foundation economists David Kreutzer and Nicolas Loris have posted an assessment of the economic impacts of a carbon tax that starts out at $25 per ton and increases by 5% annually (after adjusting for inflation). Rather than use industry data or assumptions, they compare two policy scenarios (“side cases”) from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2012.
Specifically, Kreutzer and Loris compare projected household income, utility bills, gasoline prices, and job creation in the $25 per ton carbon tax side case and the no-greenhouse-gas-concern side case, a scenario in which energy investors face no risk of a carbon tax or greenhouse gas (GHG) regulation.
Here’s what they found. A ‘modest’ carbon tax, as described above, would:
- Cut the income of a family of four by $1,900 per year in 2016 and lead to average losses of $1,400 per year through 2035;
- Raise the family-of-four energy bill by more than $500 per year (not counting the cost of gasoline);
- Cause gasoline prices to increase by up to $0.50 gallon, or by 10 percent on an average gallon price; and
- Lead to an aggregate loss of more than 1 million jobs by 2016 alone.
The foregoing numbers do not take into account the economic benefits of a carbon tax that displaces other taxes or that preempts EPA and state-level GHG regulations. But that is fitting and proper, argue Kreutzer and Loris, because a revenue-neutral carbon tax is a political pipedream, and so is a tax-for-regulation swap.
Carbon taxes are in vogue in certain quarters today for one reason only: their obvious potential to feed Washington’s spending compulsion by increasing net tax revenues. “Before carbon tax legislation has even been introduced,” the Heritage analysts note, “ideas on how to use the revenue already include income transfers, paying for [avoiding?] defense spending cuts, reducing the deficit, transferring money to developing countries to adapt to climate change, and the list goes on.”
Setting a carbon price and letting markets sort out the consequences may appeal to some blackboard economists, but not to the global warming movement, which has continually lobbied for mandates in addition to carbon pricing schemes like cap-and-trade. “For instance,” Kreutzer and Loris point out, “the Waxman-Markey bill went on for nearly 700 pages before it even began the cap-and-trade section.”
The Heritage duo let Rep. Henry Waxman have the last word on the likelihood of a tax-for-regulation swap. Asked for his position, Rep. Waxman recently stated:
A carbon tax or a price on carbon would be a strong incentive for the development of new technologies. But because it’s so complicated, I would not support preempting EPA. EPA can assure us that we can actually get the reductions we need.