The Implications of a Carbon Tax in the US
Climate change is arguably the most relevant and impactful current event. Both its effects and countermeasures are felt globally, and many countries have begun implementing policies and goals in hopes of nullifying its impacts. Environmental catastrophes such as rising sea levels and extreme weather conditions are a direct result of greenhouse gas (GHG) emissions and are on course to continue worsening if emissions don't dramatically decline.
Implementing a tax on carbon emissions would be a step in the right direction for any country hoping to make a difference and would help reverse the damage caused by pollution. Near the beginning of his term, President Biden detailed his plan to achieve carbon pollution-free electricity by 2035 and net-zero carbon emissions by 2050. As of 2023, eleven US states are using a cap-and-trade system that sets a constricting “cap” on how much carbon pollution can be emitted by a company (Patnaik & Kennedy, 2021). Unfortunately, this system alone is not enough to reverse the effects of GHG pollution. Today, a handful of regulations to help this process have been proposed, but one appears significantly more promising than most: a tax on carbon emissions. As of today, 27 countries across the globe have introduced the said “Carbon Tax” to discourage both the use of burning fossil fuels and purchasing the products that result from this process.
A carbon tax would directly reduce carbon emissions and raise capital for the fight against climate change, but for some, the negative effects may lead many to renounce their support. Although carbon doesn’t have a set price per metric ton at the federal level, there have been several proposals; most of which charge a higher figure each year for the price of carbon in hopes of reducing the yearly output as time passes. An analysis of the Center for Climate and Energy Solutions shows a diverse set of approaches, focusing on nine different carbon motions, 6 of which suggested a carbon tax. The Save Our Future Act, sponsored by seven members of Congress, proposed a $54 fee per metric ton of carbon dioxide equivalent, increasing 6% per year above inflation and a fee of 5% if the annual emission target isn’t met (Ye, 2022).
With a price similar to Canada’s current levy of $65 per ton (Shingler, 2023), the US would raise over $100 billion with their annually determined rate, continuing to increase until 2050. As a result of this, many companies based in the US would experience an immediate dent in their income statements. They would be the first ones hit by the tax, which would directly result in higher fees and pricing of products. As companies adjust to this tax, costs would shift to consumers, forcing them to pay a higher price on necessities like heating and electricity. The transportation, electricity production, and industry sectors would see the sharpest price change as they are the primary sources of GHG emissions in the US (EPA, 2023). It can be concluded that a carbon tax would be regressive, impacting lower-income citizens more than those with a higher income.
The regressive nature of this tax has been shown in numerous countries with a carbon tax, one of which is Canada. Canada’s Prime Minister, Justin Trudeau, recently instilled a 3-year halt on the carbon tax, as he felt prices were becoming too regressive and dividing. Canadian Energy and Natural resources Minister Johnathan Wilkinson stated, “Heating oil is two- to four times more expensive than natural gas. It went up by 75% in 2022," in an interview pertaining to the country’s carbon regulations. He highlighted the fact that this only added to the tax's regressive consequences, and this statistic was one of the reasons why this 3-year pause was put on certain aspects of the carbon laws in Canada (Scherer, 2023).
Rising prices will justifiably raise concern among both sellers and consumers in the US. If a carbon tax is passed, prices will initially be high for every participant in the US market and may not appear to be an economically sound decision. Despite this supposition, a 2016 survey conducted by Yale University found that Americans average willingness to pay (WTP) for a carbon tax was $177 per year and proved that many were in support of a tax to help fight climate change (Kotchen, Turk, Leiserowitz, 2017). If a carbon tax is passed in the US, there will be a transitional period where companies will have to switch to more environmentally friendly production methods. This will be a costly process but will have a massive contribution to reversing the effects of climate change.
As of 2023, the United States is the second-highest producer of GHG pollution (EPA, 2023). This ranking means that although a carbon tax has regressive implications, it could also be significantly progressive. As time goes on, both prices and the level of GHG pollution will sink. A Brooking’s study found that a “$50 per ton carbon tax rising by five percent per year would reduce emissions by 26 to 47 percent relative to 2005 levels—up to 90 percent of the reductions needed to achieve President Biden’s Paris Agreement goal” (Patnaik & Kennedy, 2021). Considering the United States is the second highest producer of GHG and that 27 countries have already utilized a carbon excise, it is crucial for the United States to introduce a carbon tax. The initial impact will hit many hard, but it is a necessary step for future generations.
Works Cited
CBC/Radio Canada. (2023, November 2). How Canada’s carbon tax is supposed to work. CBCnews. https://www.cbc.ca/news/climate/carbon-tax-home-heating-oil-1.7015480#:~:text=The%20carbon%20tax%20is%20a,transition%20away%20from%20fossil%20fuels
Kotchen, M. J., Turk, Z. M., & Leiserowitz, A. A. (2017). Public willingness to pay for a US carbon tax and preferences for spending the revenue. Environmental Research Letters, 12(9) doi:https://doi.org/10.1088/1748-9326/aa822a
National Service Center for Environmental Publications. (n.d.). Sources of greenhouse gas emissions. US EPA. https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions
Sanjay, S., & Kennedy, K. (2022, March 9). Why the US should establish a carbon price either through reconciliation or other legislation. Brookings. https://www.brookings.edu/articles/why-the-us-should-establish-a-carbon-price-either-through-reconciliation-or-other-legislation/
Scherer, S. (2023, November 6). Canada’s energy minister defends carbon tax carve-out for heating oil. Reuters. https://www.reuters.com/sustainability/climate-energy/canadas-energy-minister-defends-carbon-tax-carve-out-heating-oil-2023-11-06/
Ye, J. (n.d.-b). Carbon pricing proposals in the 117th Congress. Center for Climate and Energy Solutions. https://www.c2es.org/wp-content/uploads/2021/12/carbon-pricing-proposals-in-the-117th-congress.pdf
