A $25-50/tonne tax or fee on carbon emissions could help the US meet goals outlined in the United Nations’ 2016 Paris climate agreement, Congressional Research Service analysts concluded. But policymakers would face challenging decisions about how the new federal revenue would be distributed, CRS said in a report.
“Depending on the level of the tax, some economic analyses indicate that the distribution of tax revenue could yield greater economic impacts than the direct impacts of the tax. Some models indicate that the economic impacts are greatest in the early years of the carbon tax,” the Mar. 22 report indicated.
Calling the tax a “fee” could begin to make it more palatable politically for some members of Congress. But the report suggested that it still would disproportionately affect fossil fuel industries, particularly coal, and communities that rely on them for jobs. Policymakers potentially could allocate some of the new tax or fee’s revenue to provide transition assistance to employees or affected communities, it said.
It estimated that impacts from a $25/tonne carbon tax on specific fossil fuels would be $45/short-ton for coal, $10.75/bbl for crude oil, $1.25/Mcf for natural gas, 23¢/gal for gasoline, and 20¢/gal for home heating oil.
Policymakers could support a range of policy objectives from the tax’s revenues, but they would encounter tradeoffs with each objective, the report said. “The central tradeoffs involve minimizing economy-wide costs, lessening the costs borne by specific groups—particularly low-income households—and supporting a range of specific policy objectives,” it noted.
The report found that potential economy-wide costs that may result would be a primary concern. “The potential costs would depend on a number of factors, including the magnitude, design, and use of revenues of the carbon tax,” it said. In general, economic literature finds that some of the modeled revenue applications would reduce the economy-wide costs imposed by a carbon tax but may not eliminate them entirely.”
It pointed out that policymakers and stakeholders may have different perspectives regarding whether these estimated economy-wide costs—typically measured in terms of gross domestic product—represent a significant concern.
“Some argue that the estimated economy-wide costs should be compared with the policy option of not establishing a carbon tax. This comparison is uncertain as carbon tax analyses do not generally consider the benefits that would be gained by reducing GHG emissions and avoiding climate change and its adverse impacts,” the report observed.
Disproportionate impacts on “emissions-intensive, trade-exposed industries” would be an additional concern, it continued. “Policymakers could select among several options to address these concerns, either by establishing a border carbon adjustment program or allocating some of the carbon tax revenue to selected industry sectors based on an output-based metric. If other nations were to adopt comparable carbon price policies, this concern may be alleviated to some degree,” the report said.
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