Heritage Foundation analysts David Kreutzer and Kevin Dayaratna yesterday released a study on the economic impact of carbon tax legislation (the Climate Security Act of 2013) sponsored by Sens. Barbara Boxer (D-Calif.) and Bernie Sanders (I-Vt.). The Boxer-Sanders legislation would establish a new tax that starts at $20 per ton of carbon dioxide (CO2) emitted and increases by 5.6% annually.
As Kreutzer and Dayaratna point out, hydrocarbon fuels supply 85% of all the energy Americans use, and “basic chemistry” dictates that CO2 will be emitted when those fuels are oxydized (burned) to release energy. The economic implications of those facts are significant and unavoidable:
Therefore, a tax on CO2 would be a tax on the 85 percent of energy derived from hydrocarbons and would increase energy costs broadly. The higher energy costs would ripple through the economy, driving up costs of production of virtually all goods and services. Faced with higher costs for energy and other goods, consumers would cut consumption, translating into a reduction in sales and a marked decline in employment. Though rebating the tax partially offsets these impacts, there would still be a net loss of income and jobs.
Using an energy model derived from the Energy Information Administration’s National Energy Model System (NEMS), the Heritage scholars calculate that, compared to a no-carbon tax baseline, the Boxer-Sanders proposal would:
- Reduce the income of a family of four by more than $1,000 per year.
- Reduce employment by more than 400,000 jobs in 2016.
- Decrease coal production by 60% and coal employment by more than 40% by 2030.
- Decrease employment 10.4% and 20.9% in the iron and steel and aluminum industries, respectively, by 2030.
- Increase gasoline prices $0.20 by 2016 and $0.30 before 2030.
- Increase electricity prices 20% by 2017 and more than 30% by 2030
- Increase federal taxes by $3 trillion through 2030.
- Reduce GDP by $92 billion in 2020 and $146 billion in 2030.
- Decrease projected global warming by, at most, 0.11C by 2100 [probably too little to be reliably detected].
My two cents: The Boxer-Sanders proposal exhibits the same old abysmal cost-benefit ratio that preempted U.S. ratification of the Kyoto Protocol and scuttled the Waxman-Markey cap-and-trade bill. Boxers and Sanders must surely know that a carbon tax has no chance of passing as a stand-alone bill. The Climate Security Act is thus a messaging bill designed to move public debate in favor of including carbon taxes in “comprehensive tax reform.” The Heritage study is a valuable and timely antidote to the message Boxer and Sanders are promoting.