Surprise! Carbon Tax Would Raise Unemployment, Not Revenue
Interested in raising revenue and reducing global warming, some policymakers in Washington are floating the idea of a carbon tax. In order to sway conservatives to support a carbon tax, proponents are pushing for either revenue neutrality or replacing the Environmental Protection Agency's (EPA) greenhouse gas regulations. These proponents ignore three critical realities of implementing a carbon tax.
1. A Carbon Tax Would Damage the Economy
Since an overwhelming majority of America's energy needs are met by carbon-emitting fossil fuels, regulations of these fuels directly raise the cost of electricity, gasoline, diesel fuel, and home heating oil. Since low-income families spend a larger proportion of their income on energy, a tax that increases energy prices would disproportionately affect the budgets of the poorest American families.
Businesses, faced with higher energy costs, would likely pass those costs on to consumers. However, if a company had to absorb the costs, high energy costs would squeeze profit margins and prevent businesses from investing and expanding. Investors might even move their funds away from energy companies and toward less regulated business enterprises, thus depriving fossil-fuel-based companies much-needed cash for more efficient power generation. The result is higher energy costs, lower income, and fewer jobs.
In 2012, the U.S. Energy Information Administration (EIA) made a comparison analysis for a carbon tax that starts at $25 and rises by 5 percent per year (after adjusting for inflation). Compared to the baseline case, without the carbon tax, this would:
- Cut the income of a family of four by $1,900 per year in 2016 and lead to average losses of $1,400 per year through 2035;
- Raise the family-of-four energy bill by more than $500 per year (not counting the cost of gasoline);
- Cause gasoline prices to increase by up to $0.50 gallon, or by 10 percent on an average gallon price; and
- Lead to an aggregate loss of more than 1 million jobs by 2016 alone.
In particular, energy-intensive industries and manufacturing would feel the adverse effects of a carbon tax, which comes at a time when many companies, lured by the prospect of abundant and cheap natural gas, are moving to the United States. ...