Why a carbon tax?

9th July, 2021.      //   Climate Change  // 

Why a carbon tax?
Carbon emissions have been driving changes in global temperatures, imposing costs on economic, human, and natural systems. The main purpose of a carbon tax is to price carbon emissions in order to reduce the amount of carbon in the atmosphere and mitigate the adverse effects of climate change.

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Combusting one unit of a certain type of fossil fuel always emits the same amount of carbon, establishing a correspondence between fossil fuels and carbon emissions. As a result, a carbon tax does not have to be levied when carbon is emitted but can instead be imposed on the carbon content of fossil fuels. It is thus not necessary to measure the amount of carbon each individual and business emits, simplifying the administration of a carbon tax drastically.

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According to the U.S. Energy Information Agency (EIA), energy-related carbon emissions are estimated to amount to 5,217 million metric tons in 2019. Under current policies, these emissions are expected to decline slightly and total 4,977 million metric tons in 2025 and 4,920 million metric tons in 2029. Extrapolating these projections, energy-related carbon emissions will total 49,931 million metric tons over the next decade (2020-2029).
Revenue Implications of a Carbon Tax
We estimate that a $50 per metric ton carbon tax would raise federal revenue by $1.87 trillion between 2020 and 2029.
The carbon tax itself would collect $2.6 trillion in receipts over this time. However, the imposition of the carbon tax would reduce income and payroll tax revenue.
Conclusion
There are many policy choices lawmakers face when designing a carbon tax, one being revenue recycling and its implications. Our analysis shows how economic and distributional effects of a carbon tax critically depend on how the generated tax revenue is used.
Assuming a broad-based carbon tax levied at a rate of $50 per metric ton and an annual growth rate of 5 percent, we estimate that the tax would generate $1.87 trillion in additional federal revenue over the next 10 years.
A carbon tax paired with a cut in the corporate income tax, permanent 100 percent bonus depreciation, and R&D expensing boosts output and pre-tax wages while decreasing progressivity and lowering employment.

A carbon tax paired with a cut in the employee-side payroll tax increases progressivity, output, and employment.

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