A Carbon Tax Would Raise Prices, Harm Economy and Spur Political Backlash

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The Competitive Enterprise Institute (CEI) published a new paper today arguing a carbon tax is unnecessary, harmful to economic growth and consumers, and would be a political disaster for supporters of the policy.

In “Why Carbon Taxes Are Anti-Growth, Anti-Consumer, and Politically Dangerous for Conservatives,” CEI senior fellow Marlo Lewis examines several carbon tax proposals currently pending in Congress and finds they are all unnecessary, harmful to growth, certain to raise prices for consumers when inflation is already high, and will not lead to an end of greenhouse gas regulations. The study examines both major scientific rationales for a carbon tax, the concept of the social cost of carbon and claims that climate change is an existential threat endangering the survival of civilization and the habitability of the Earth.

“Contrary to its advocates’ claims, a tax on carbon dioxide emissions is a market-rigging policy, not a free market one. The purpose of a carbon tax is to drive investment into renewable energy sources – not by lowering their cost or improving their performance – but by handicapping competing technologies,”said Lewis. “Carbon taxes would inflict substantial losses on household income, job creation, and GDP; and studies show even the most aggressive carbon tax would have negligible effect on the climate, meaning the costs would far exceed the benefits. Supporting such a policy would have obvious and disastrous political consequences for conservatives, especially.”

Carbon tax boosters point to the “Social Cost of Carbon” (SCC) – a dollar estimate of the cumulative long-term damages caused by an incremental ton of carbon dioxide emissions – to justify implementing a carbon tax, but Lewis finds SCC is unreliable because it is too speculative and easily manipulated for political ends.

“The problem with the ‘social cost of carbon’ is that it is too speculative and prone to political manipulation to inform policy decisions with multi-billion impacts on consumers and economy,” said Lewis.

“Far from being an existential threat, a 2019 per-reviewed study found that the relative economic impact of climate related damages declined five-fold from 1980–1989 to 2007–2016. Moreover, despite a four-fold increase in global population, the global number of deaths related to climate disasters in 2021 is projected to be about 99 percent smaller than the global annual average in the 1920s,” Lewis explained.

Lewis also argues that supporters of a carbon tax risk severe political blowback if one is implemented. Polling – including a CEI poll from September 2021 – shows many Americans are unwilling to pay more in energy costs in exchange for climate mitigation. The CEI poll found four out of ten respondents were unwilling to spend more than $1 annually in higher gas and electricity prices in order to mitigate the effects of climate change. A further nine percent said they would not spend more than $10 more per year on gas and electricity for more climate change policies.

Other key points from the report:

  • A $300 per ton carbon tax would only reduce U.S. carbon emissions by 58 percent by 2050 while imposing severe economic hardship, according to a 2019 Heritage Foundation study (which relied on an energy-economy model with identical code to that of the U.S. Energy Information Administration). By 2040, it would: cost millions of jobs, reduce the income of a typical family of four by $8,000 every year, reduce cumulative Gross Domestic Product (GDP) by $15 trillion, and increase household expenditures on electricity by more than 30 percent.
  • A paper published earlier this year in Nature Climate Changeestimates that a carbon tax would have to exceed $1,500 per ton to almost achieve a net of zero carbon emissions – five times the size of the tax that would cost the average family of four $8,000 per year.

Read the whole report on cei.org.