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CBO says carbon tax would cut deficit

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Michael Bastasch Contributor
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The Congressional Budget Office has suggested a carbon tax as one solution to the federal budget deficit, estimating $1 trillion in deficit reduction over the next decade.

The CBO analyzed imposing a $25 per ton tax on carbon dioxide emissions that would rise two percent per year. Imposing an emissions tax would raise more than $1 trillion through 2021. A carbon tax has been pushed by Democrats and environmentalists as a way to fight global warming.

“Make the big carbon polluters pay a fee to the American people, as I have proposed with Representatives Waxman and Blumenauer and Senator Schatz; a pollution fee to cover the cost of dumping their waste into our atmosphere and oceans — a cost which they now happily push off onto the rest of us,” said Rhode Island Democratic Sen. Sheldon Whitehouse.

Liberal California Democratic Sen. Barbara Boxer and Vermont independent Sen. Bernie Sanders floated a carbon tax bill earlier this year, but have opted against bringing it to the floor. They will instead push a carbon tax as part of efforts to reform the tax code.

The CBO claims that a carbon tax would lower carbon emissions at the lowest possible cost. Taxing emissions would also give power plants and other emitting facilities much more flexibility to comply than using the Environmental Protection Agency to mandate emissions cuts, according to the CBO.

“[S]tandards issued under the [Clean Air Act] … would offer less flexibility than a tax and, therefore, would achieve any given amount of emission reductions at a higher cost to the economy than a tax,” the CBO said.

But the CBO’s analysis of a carbon tax wasn’t entirely rosy.

“An argument against a tax on GHG emissions is that curtailing U.S. emissions would burden the economy by raising the cost of producing emissions-intensive goods and services while yielding benefits for U.S. residents of an uncertain magnitude,” the CBO added.

Critics of a carbon tax argue that it would essentially raise the price of all goods, since most everything people consume is made with fossil fuels — which emit large amounts of carbon.

“It’s not just energy prices that would skyrocket from a carbon tax, the cost of nearly everything built in America would go up,” said Louisiana Republican Sen. David Vitter. “Let’s not lose sight of how big of a dud cap and trade was in 2009, or as it came to be known, cap and tax. This is really no different.”

Furthermore, critics argue that raising the cost of burning fossil fuels in the United States would simply move such activity outside the country, to places where there aren’t as efficient power plants or as strict environmental laws, negating U.S. efforts to fight global warming.

The CBO noted that “reductions in domestic emissions could be partially offset by increases in emissions overseas if carbon-intensive industries to countries that did not impose restrictions on emissions.”

It’s also possible that reduced American energy consumption could cause fuel prices outside the United States to drop, necessitating a global effort to fight global warming.

A study by the Institute for Energy Research found that a revenue-neutral carbon tax would be a “cure worse than the disease.”

“The dismal record of the U.S. government in implementing efficient climate change policies is hardly evidence in favor of a massive new carbon tax (or cap-and-trade program),” said the study’s author, IER senior economist Robert Murphy in a statement. “Such a new program will be abused in the political process, and will not be tailored to the recommendations of climate scientists and environmental economists.”

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