April 11, 2017

TAX WHAT YOU DON'T WANT:

Carbon Taxes and U.S. Manufacturing Competitiveness Concerns (Stefan Koester and Gilbert E. Metcalf,·April 11, 2017, Econofact)

The Facts:

Economists widely agree that carbon pricing is the most efficient and least costly way to reduce U.S. emissions. Based on a 2016 U.S. Department of Treasury analysis, if the U.S. were to implement an economy-wide carbon tax starting at $49 a ton in 2019, we could reduce carbon emission by 21 percent by 2028 and raise over $2.2 trillion in revenue over the next ten years.

The macroeconomic trade effects of a unilateral carbon tax on employment, investment, and competitiveness for large, diverse economies like the U.S. would be small (see for instance these studies: 1,2,3). However, certain sectors would likely suffer, and in order to gain broad, bipartisan support, any carbon tax proposal would likely need to include a carbon border tax.

Border carbon adjustments (BCAs) are taxes on energy intensive imports and rebates on the carbon tax paid on energy intensive exports. These carbon adjustments mean that carbon emissions are taxed based on where the goods are consumed rather than where they are produced. Border tax adjustments level the playing field between U.S. firms in energy-intensive, trade-exposed sectors and competitors from countries that don't have a carbon price in place.

Posted by at April 11, 2017 5:05 PM

  

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