RFF Carbon Tax Initiative: Update on Recent Research

Over the past six months, researchers at Resources for the Future (RFF) have completed a new round of work related to the role that a federal tax on carbon dioxide (CO2) could play in the context of fiscal policy and tax reform. This new research covers three themes: 1) options for revenue recycling; 2) mechanisms for addressing the concerns of energy-intensive, trade-exposed industries; and 3) scaling CO2 tax rates to recent estimates of the social cost of carbon. More detailed descriptions of these research topics are included in the agenda below. Join researchers at RFF on October 8 for a high-level, half-day discussion of the results, their implications for fiscal and environmental policymaking, and priorities for additional research.

Agenda

• 8:30 – 9:00 a.m.​ Continental Breakfast​
• 9:00 – 9:15 a.m.​ Welcome
  • Ray Kopp, Director,
  • RFF’s Center for Climate and Electricity Policy 
• 9:15 – 10:30 a.m.​ Session 1: Carbon Taxes and Revenue Recycling
  • Rob Williams and Marc Hafstead (RFF)
  • How carbon tax revenues might be used can impact the growth potential of the economy and the distribution of the tax burden across US households.
  • Two new studies at RFF examine the revenue recycling options.
• 10:30 - 10:45 a.m.​ Break ​
• 10:45 - 11:30 a.m.​ Session 2: Using the Tax Code to Compensate Energy-Intensive, Trade-Exposed Industries under a Carbon Tax Gib Metcalf (Tufts University)

If a carbon tax were incorporated as an element of an overarching tax reform initiative, it is logical to consider how other elements of the reform could be designed to address industry concerns over the effects of a carbon tax on trade and competition. Gib Metcalf from Tufts University will present results of an analysis of possible compensation schemes to address competition and leakage concerns for energy-intensive, trade-exposed sectors arising from a carbon tax, using the tax code to affect compensation.

• 11:30 a.m. - 12:15 p.m.​ Session 3: Pricing CO2 Emissions from the Electricity Sector at the Social Cost of Carbon Anthony Paul (RFF)

New estimates of the social cost of carbon released by the White House in May 2013 have attracted the attention of members of Congress who believe the estimates might be used to scale the stringency of stationary source CO2 regulations under the Clean Air Act or to set the value for a carbon tax. Researchers at RFF have used their utility sector model to examine the effects of imposing a tax on CO2 emissions set to match the new social cost of carbon estimates, analyzing implications for investment in and retirement of generating units, generation mix and fuel use, CO2 emissions, and electricity prices at the national and state level.

In the first study, RFF researchers deploy a newly created “overlapping generations” model to consider alternative uses of carbon tax revenues, including revenue-neutral tax swaps, household rebates, deficit reduction, and offsetting revenue losses or funding cuts brought about by sequestration. This unique model, well-suite to fiscal policy analysis, allows for examination of the impacts of fiscal policy measures across the age structure of American households—separating elderly, middle-age, and young households.

In the second study, researchers from RFF and Stanford University use a general equilibrium model of the US economy with a high degree of corporate and personal income tax detail to consider the impacts of several revenue-neutral carbon tax policies, including lump-sum recycling to households, recycling via cuts in individual labor and capital income tax rates, recycling via cuts in corporate tax rates, and more.

Using the Tax System to Address Competition Issues with a Carbon Tax. In this RFF discussion paper, Gilbert E. Metcalf of Tufts University and the National Bureau of Economic Research considers how tax reductions financed by a carbon tax could mitigate the need for specific relief for energy-intensive, trade-exposed sectors. Taxing Reform and Environmental Policy: Options for Recycling Revenue from a Tax on Carbon Dioxide. In this RFF discussion paper, RFF University Fellow Lawrence H. Goulder of Stanford University and RFF Fellow Marc Hafstead use their model of the US economy to assess the economic impacts of a carbon tax under alternative methods of recycling the tax revenues. Taxing Electricity Sector Carbon Emissions at Social Cost. RFF’s Anthony Paul, Blair Beasley, and Karen Palmer look at how a carbon tax—based on a range of social cost of carbon estimates—would affect electricity emissions, consumption, fuel use, investment, and regional prices. Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts. Dallas Burtraw, Dick Morgenstern, Rob Williams and the University of Alberta’s Jared Carbone look at the fiscal, economic growth and environmental effects of alternative uses of potential carbon tax revenues, including revenue neutral tax swaps, household rebates, and deficit reduction.