Concerns about budget deficits, tax reform, and climate change are fueling discussions about taxing carbon emissions to generate revenue and reduce greenhouse gas emissions. Imposing a carbon tax on electricity production based on the social cost of carbon (SCC) could generate between $21 and $82 billion in revenues in 2020 and would have important effects on electricity markets. The sources of emissions reductions in the sector depend on the level of the tax. A carbon tax based on lower SCC estimates reduces emissions by reducing demand and through the substitution of gas for coal, whereas taxes based on higher SCC estimates induce switching to wind and nuclear generation. The slow rate of growth of the SCC estimates means that any SCC-based carbon tax trajectory provides weaker long-run incentives for expanded renewable and nuclear generation than a cap-and-trade program that achieves an equivalent level of cumulative carbon dioxide emissions reductions. Taxing carbon at the SCC is welfare enhancing, but the SCC may not be the optimal tax rate.
Taxing Electricity Sector Carbon Emissions at Social Cost
Imposing a carbon tax on electricity production based on the social cost of carbon could generate between $21 billion and $82 billion in revenues in 2020 and would have important effects on electricity markets.Download
Taxing Electricity’s Carbon Emissions at Social Cost
A national tax on carbon emissions would offer an opportunity for deficit reduction and/or tax reform, as well as climate change mitigation. Econom...
Journal Article — May 21, 2019
Impacts of a Carbon Tax across Us Household Income Groups: What Are the Equity-Efficiency Trade-Offs?
This paper assesses the impacts across US household income groups of carbon taxes of various designs.
Press Release — May 15, 2019