Carbon Tax

James Griffen from the Bush School Of Government And Public Service has a carbon tax proposal that is close to what we support.

Sidebar One: H/t to Kevin Williamson who classifies it as one of those things I disagree with but think you should read anyway.  End Sidebar One.

James makes the obvious point that:

Congress should stop picking winners, choosing to boost selected alternative technologies. Its members aren’t any good at recognizing the most promising ones.

Agreed.

Then he says:

Opponents of any policy to reduce US emissions would argue that without international cooperation, such policies are futile and would only hurt the United States. These same opponents would point out that such international cooperation seems unlikely in today’s fractured world. This is an argument against a high fee, not for a zero fee.

Agreed.  We don’t want to overtax but we should move the incentives in the right direction.  He suggests a tax of $10 per ton of carbon or $0.10 per gallon of gas.  The current federal tax on gas is 18.4 cents and the tax on diesel is 22.4 cents.  Since diesel produces more carbon than a tax of $10 per ton will roughly reflect the current tax ratio.  According to the EPA, the US produced 6,870 million metric tons of carbon in 2014 and sold 140 billion gallons of gas in 2015.

Sidebar Two: We are not sure if James is using metric tons or not.  There could be a roughly 10% difference if the tons don’t match up.  The difference between 2014 carbon and 2015 gas is even more unimportant here.  It is important that the final proposal get it right but we are estimating here.  End Sidebar Two.

So if we replace the gas and diesel tax with a more general tax, we could reduce the tax on gas but increase tax receipts and reduce expenditures on other types of energy.  At $10 per ton we would generate almost $69 billion.  The gas tax currently generates 18.4 cents multiplied by 140 billion gallons or less than $26 billion.  Diesel fuel tax is around $8 billion.  So we can eliminate the subsidies for alternative fuels and double the tax revenues while reducing prices at the pump.  If you wanted to maintain prices at the pump, then revenues would increase by $93 billion.  We would take either deal.

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