The Economic Benefits of Carbon Taxes

Every day the U.S. lacks a federal carbon tax is a day Americans ignore a solution to reduce the deficit. That is the finding of a new study by the Congressional Research Service, which showed that the U.S. deficit could be reduced fifty percent in ten years by the adoption of a $20/metric ton carbon tax.

Carbon taxes are an economic silver bullet

In addition to carbon taxes’ potential to rapidly reduce the deficit, they provide countries with a new source of revenue, therefore reducing the pressure on politicians to generate funds through social program cuts and income tax hikes. For example, Australia’s recent carbon market is forecast to generate $4 billion in profits in 2013; the UK will make $1.06 billion in same period. The U.S.’ own Regional Greenhouse Gas Initiative (RGGI) makes about $200 million annually. Though these numbers are modest in the world of national finance, part of the beauty of a carbon tax is that the cost of carbon can be ratcheted higher, which increases governmental revenue while improving the environment.

It turns out that improving the environment is key to creating a stable economy. Another new study shows that the global economy is losing $1.2 trillion (1.6 percent of global GDP) in value annually due to climate change. The study suggests that climate change could cost some nations over 10 percent of their annual GDP by 2030. Americans, who will see food prices rise 3 percent this year due to the Midwest’s crop-killing summer extremes, are starting to meaningfully understand the financial cost of climate change. To stabilize and reverse these trends, we must mitigate or halt climate change, if possible. To do that, carbon must be regulated.

Carbon taxes don’t cause economic ruin

The success of numerous, profitable carbon markets disproves critics’ “the sky is falling” attitude toward carbon regulation. Carbon regulation exists in seventeen countries  internationally (Finland, Germany, Denmark, Ireland, Italy, Sweden, Switzerland, the UK, Australia, India, New Zealand, Netherlands, Norway, Slovenia, India, Costa Rica, and parts of Canada (Quebec, British Columbia, Alberta), and nine states domestically (Massachusetts, Connecticut, New Hampshire, Maine, Rhode Island, Vermont, Maryland, New York, Boulder, CO). Taiwan, China and California seem to be on the path to regulating carbon by 2020, and South Africa will have a carbon tax in place by 2013. Further, nations with carbon markets enjoy some of the strongest economies on the planet. Many American states with carbon regulation suffered least in the recession and recovered faster than states without carbon regulation.

Hope for U.S. carbon policy remains 

Though the President seems inclined to block an opportunity to include the U.S. commercial airlines in EU aviation carbon regulation, it is a cause for optimism that the Congressional Research Service is studying carbon markets. The Congressional Research Service is a part of the Library of Congress and is the most reputable, elite source of analysis in the country. CRS advises Congress directly and has unmistakable significance in the policy world. CRS’ consideration suggests that carbon taxes are a policy issue that Congress may be interested in.

Image by ilco.

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