CBO report examines carbon tax’s possible consequences

Establishing a tax on carbon would raise significant revenue for the federal government, but could have potentially serious general economic impacts, the Congressional Budget Office said in a new report. The key question is whether short-term adverse impacts are preferable to possibly disastrous consequences of not addressing global climate change, it suggested.

“Given the inherent uncertainty of predicting the effects of climate change, and the possibility that it could trigger catastrophic effects, lawmakers might view a carbon tax as a reflection of society’s willingness to pay to reduce the risk of potentially very expensive damage in the future,” the May 22 report said.

It said neither CBO nor the staff of the congressional Joint Committee on Taxation has published an estimate of how much revenue a carbon tax might produce. CBO has estimated how much a cap-and-trade program, which is similar, would raise, it added.

In 2011, CBO said such a program established the next year that set a $20 tax for each ton of carbon dioxide emitted, and increasing by 5.6%/year thereafter, would raise nearly $1.2 trillion during its first decade. Total domestic CO2 emissions would be reduced 8% during that period, it estimated.

By raising fossil fuel costs, a carbon tax would increase manufacturing costs, resulting in higher prices which would diminish individuals’ purchasing power and reduced their inflation-adjusted wages, the report said.

Uneven impacts

It said a carbon tax’s impacts would not be evenly distributed among US households. Higher prices would consume a greater share of income for low-income households than for higher-income households, because low-income households generally spend a larger percentage of their income on emission-intensive goods, it indicated.

“Similarly, workers and investors in emission-intensive industries, who would see the largest decrease in demand for their products, would be likely to bear relatively large burdens as the economy adjusted to the tax,” the report said.

The tax’s general economic effects would depend on how its revenue was used, CBO said. Options include reducing budget deficits, decreasing marginal tax rates, or offsetting costs it would impose on certain groups, it noted. The first two of these options would reduce the tax’s total economic costs, but the third would not, it added.

The report observed that climate change resulting from higher average temperatures is a long-term problem with global causes and consequences which requires a concentrated effort by countries with the heaviest CO2 emissions to solve.

It said estimates of carbon emissions’ potential social costs vary widely, with the highest occurring when researchers attach significant weight to long-term outcomes, and incorporate a small probability that climate change damage could increase sharply in the future, causing very large—or even catastrophic—losses.

Responses vary

Congressional responses to the report varied. US Reps. Henry A. Waxman (D-Calif.), the House Energy and Commerce Committee’s ranking minority member, and Bobby Rush (D-Ill.), who holds that position on the committee’s Energy and Power Subcommittee, asked the full committee’s chairman, Rep. Fred Upton (R-Mich.), on May 29 to schedule a hearing on the potential climate impacts of not controlling carbon emissions.

But David Vitter (R-La.), the US Senate Environment and Public Works Committee’s ranking minority member, said on May 23 that CBO’s report warned costs would be substantial and generally ineffective without more countries’ cooperation.

“You always hear proponents talk about regulating or taxing carbon dioxide, but you never hear them address the consequences of how it would increase the cost of energy for those least able to afford it, or the detrimental effects on domestic manufacturing and jobs,” he maintained.

An official from one oil and gas association also responded. A spokeswoman for the American Fuel & Petrochemical Manufacturers told OGJ on May 29 that CBO’s report showed what the group has always said: that carbon taxes “would be a regressive albatross on a recovering economy.

“Innovation in domestic energy production is leading the way by attracting high paying manufacturing jobs back to the United States, and the US should not put those jobs at risk for a policy proposal that will do next to nothing to curb global greenhouse gas emissions,” she continued. “This report is yet more evidence that 58 senators were right when they voted to reject carbon taxes earlier this year.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

Definitive Guide to Cybersecurity for the Oil & Gas Industry

In the Oil and Gas industry, there is no single adversary and no single threat to the information tech...

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by
Available Webcasts

Better Data, Better Analytics, Better Decisions

When Tue, Oct 27, 2015

The Oil & Gas industry has large amounts of data stored in multiple systems which are purpose built for certain tasks. However, good decisions require insights based upon the data in all of these systems. These systems in turn do not talk to each other. So the process of analyzing data, gaining insights, and making decisions is a slow one and often a flawed one. Good decisions require accurate analytics and accurate analytics require superior/sustainable data quality and governance. This webinar focuses on:

  • The importance of data quality and governance
  • How technological advances are making data quality and governance sustainable in order to get the accurate analytics to make solid decisions.

Please join us for this webcast sponsored by Seven Lakes Technologies and Noah Consulting.


Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected