The Effects of Carbon Tax, and an Upward Revision of the Social Cost of Carbon

The U.S. Congressional Budget Office released a study on May 22 which reviews the existing literature on the economic impacts of a carbon tax, and explores three options for using the revenues from the tax: to reduce budget deficits, to decrease existing marginal tax rates, or to offset the costs to the most affected groups of people. Read: Effects of a Carbon Tax on the Economy and the Environment at: http://www.cbo.gov/publication/44223 or for a more detailed study of the effects on employment, see the May 2010 CBO Briefing Report How Policies to Reduce Greenhouse Gas Emissions Could Affect Employment at: http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/105xx/doc10564/05-05-capandtrade_brief.pdf. The 2013 CBO study discusses various studies which estimate the social cost of carbon – the value used by governments (including Canada’s) to assess the benefits and costs of the reduction of greenhouse gas emissions.

An important new report released by the U.S. Government in June revises the “official” U.S. social cost of carbon substantially, by between 50 – 60%. The first regulation to use this new SCC will be the U.S. emission standard for microwaves; it has also been recommended for use by the State Department in its consideration of the impact of the Keystone Pipeline. Read: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis – by the U.S. Interagency Working Group on the Social Cost of Carbon Under Executive Order 12866 at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf, and for background, see the U.S. Environmental Protection Agency article at: http://www.epa.gov/climatechange/EPAactivities/economics/scc.html

 

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