Tuesday, December 04, 2012

A modest carbon tax has modest carbon reduction results

Been meaning to highlight Brad Plumer's post on a paper about the effect of a carbon tax on emissions (full paper here).  A tax of $20/ton, with an inflation-adjusted 4% annual increase, knocks emissions down 14% by 2020, and a larger number in 2050 if you believe economic projections that far in the future.

I include my caveat about 2050 because economics modeling is far harder than climate modeling.  In particular I can't tell what assumptions they make about the cost of renewables in the future, which seems like a game-changer to me.

Still this seems a reasonable argument that a carbon tax has only modest benefits.  By all means we should do it, but also use the funding for renewables, and pursue stricter regulation.  One aspect that surprised me is how much money this tax would raise, over a trillion dollars in the next decade.  That can really help with deficit reduction and maintaining social welfare programs as well as renewable energy funding.

UPDATE:  I really should've mentioned that an annual 4% real increase is not enough in their model to drive large decreases in emissions.  The implication is that if you choose a small initial tax then you need a higher annual increase.  The California cap's minimum price is even smaller than this study ($10/ton), and has a 5% annual increase.  Still it's just part of the pricing system, with emission allowances hopefully functioning as the real control on the amount, together with regulation.