Introducing the E3 Carbon Tax Calculator: Estimating Future CO2 Emissions and Revenues

Here at RFF, we are regularly asked by policymakers and reporters to estimate the impact of a specific carbon tax price path on future carbon dioxide (CO2) emissions. To project future emissions under a carbon tax, we utilize a large-scale, computable general equilibrium (CGE) model of the US economy—the Goulder-Hafstead Energy-Environment-Economy (E3) CGE Model. To provide more information about carbon taxes and future emissions, we are pleased to introduce the E3 Carbon Tax Calculator.

Note: A new version of the carbon tax calculator is now available.

How to Use the E3 Carbon Tax Calculator

The E3 Carbon Tax Calculator allows users to choose a carbon tax policy beginning in 2018. Users specify an initial tax rate (in 2018) and the growth rate in the tax over time (above inflation). The calculator then reports projections from the E3 model of annual energy-related CO2 emissions and gross carbon tax revenues from 2018–2030. Annual information on the carbon price and emissions (in both billion metric tons and relative to 2005 emissions) are provided when users scroll over each individual data point.

We also provide estimates of cumulative emissions reductions, relative to the business-as-usual projections, and provide a 10-year gross revenue projection for 2018–2027.

About The E3 Model

The E3 CGE Model is an economy-wide model of the United States with international trade. Production is divided into 35 industries, with particular emphasis on energy-related industries such as crude oil extraction, natural gas extraction, coal mining, electric power (represented by four industries), petroleum refining, and natural gas distribution. The model is unique in its detailed tax treatment—it allows for interactions of environmental policy and preexisting taxes on capital and labor—and its attention to capital dynamics, which are important for analyzing how policies impact the economy over time. The model utilizes 2013 benchmark data and solves for impacts at one-year intervals beginning in 2013. The model is calibrated to approximate business-as-usual emissions projections from the US Energy Information Administration’s 2016 Annual Energy Outlook.

The E3 model is the focus of a forthcoming book—Confronting the Climate Challenge: US Policy Options (Columbia University Press, available December 2017). For greater detail on the E3 model, please refer to the book once it’s released, or read the related RFF discussion paper—Tax Reform and Environmental Policy: Options for Recycling Revenue from a Tax on Carbon Dioxide.

Key Elements of Carbon Taxes Policies in the E3 Carbon Tax Calculator

There are numerous carbon tax design options within the E3 model. For this calculator, we consider carbon tax price paths along the following dimensions.

• The tax is imposed on all fossil fuels (coal, petroleum, and natural gas) combusted within the United States.
• The tax is based on the carbon content of these fuels.
• The tax is introduced in 2018 at $X per ton (in $2018) of CO2 emitted through combustion, rising at Y percent per year above inflation.
• Revenue from the carbon tax is returned to US households through lump-sum rebates. Note: Revenue use has very little impact on the level of emissions in the E3 model and therefore we do not consider alternative revenue uses here.
• Border adjustments are only considered in the model for imports and exports of secondary fossil fuels (such as gasoline).

The views expressed in RFF blog posts are those of the authors and should not be attributed to Resources for the Future.