Carbon Tax

Kelly Myers
December 9, 2015

Submitted as coursework for PH240, Stanford University, Fall 2015

What Is a Carbon Tax?

Fig. 1: An EIA based report on actual carbon tax numbers. [3] (Courtesy of the U.S. Department of Energy)

A carbon tax is a tax that would be placed on carbon- particularly on carbon dioxide emissions. Establishing a carbon tax would be done by either taxing emissions directly or by taxing fuels that release carbon dioxide when they are burned, such as fossil fuels. [1] This is necessary because of rising concerns of global warming and climate changes, particularly due to the concern of the damage the effects could have on the world around us. A carbon tax would serve as a fixture to help conserve the environment and diminish harmful emissions in the long run.

Why a Carbon Tax for the United States?

Advocates of a carbon tax see two major benefits for the future of the United States: it would reduce carbon dioxide emissions that are damaging the environment and alleviate federal revenues. [1] These two issues are important in that carbon dioxide is the most common greenhouse gas that affects the environment.


In a country with a heightened awareness of climate change and pollution, the United States has started to implement particular techniques to influence change. The United States only accounts for about 1/5 of the global carbon dioxide emissions, but cutting these emissions alone would have a large impact on the environment. [1] Emissions of carbon, particularly in carbon dioxide, and other green house gasses have started to accumulate in the atmosphere over time, creating global warming and atmospheric concerns. [1] One way the U.S. is addressing this issue is by controlling carbon emissions that are polluting the environment. Economists argue that market-based fixtures are more effective than set regulations for addressing social damages, particularly in the realm of pollution. [2] One example of a market-based fixture is a carbon tax. By taxing carbon, emissions will in turn come at a cost, which will alleviate pollution in the long run. [2] The Congressional Budget Office (CBO) has estimated that by taxing carbon, the total emissions of carbon dioxide in the United States would drop about eight percent over a decade. [1] The motivating change behind this idea comes down to money. If it is taxed, there will be less of a demand. When the demand drops, carbon dioxide emissions will drop as well.

There is an alarming need to reduce greenhouse gas emissions in the atmosphere, the most alarming being carbon dioxide. Not only are they already a concern, fossil fuel related emissions of carbon dioxide are expected to skyrocket in the next twenty years by almost 35%. With these concerns come weather and environmental changes, both of which will affect both the world and its inhabitants. A carbon tax would provide an effective, yet forceful method to cap these detrimental effects. Many methods to help alleviate these concerns are merely choices by individuals and corporations to use clean energy. By enforcing a tax, those in the United States would be either be forced to use carbon less often or pay the price of using it.


Other than being beneficial for the environment, a carbon tax would also be rewarding for the economy in the long run. A carbon tax could increase federal revenues significantly. These revenues could potentially be used to reduce budget deficits, decrease existing marginal tax rates, and even offset costs that the carbon tax potentially could affect across social classes. [1] In fact, the CBO has analyzed programs that have suggested that a tax on carbon emissions would generate a large sum of revenue, upwards of $1.2 trillion dollars over a decade. [1] One uncertainty of a carbon tax going forward is the concern of its availability across different social classes. By implementing a carbon tax to reduce emissions, the costs will fall disproportionally on the lower social class. [2] These concerns and its impact on different social classes could be tempered by lawmaker's choices of how they use the revenues the tax would create. For example, this negative impact on the economy could be offset in the long run if tax revenues were used for deficit reduction. [1] Ultimately, there are many different ways and methods that a carbon tax could affect the economy, both good and bad. Lawmakers could effectively use these substantial profits to alleviate debt and government spending while also dispersing the funds differently across social platforms to create different incentives modes of tax returns to balance the playing field.


The future of a carbon tax ultimately comes down to what is more important: money or the environment. The more it costs to get carbon into the public's hands, the less likely the pollution exhaustive product will be mass purchased in the long run. Climate change is a serious issue that the United States, and the world, will face. The uncertainty of sharp climate changes in the future spark concern. Given the large uncertainty of predicting such climate changes and its effects on the environment, lawmakers has shifted their focus towards a carbon tax that will determine whether or not society is willing to pay to reduce emissions that are damaging the world around us. [1] A carbon tax in the future would undoubtedly have positive effects on the environment, but would have to be implemented correctly to be effective for the economy. Given the growing nature of climate change, change must be made- change none better than a carbon tax.

© Kelly Myers. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] K. A. Hassett, A. Mathur and G. E. Metcalf, "The Incidence of a U.S. Carbon Tax: A Lifetime and Regional Analysis," Energy J. 30, 155, No. 2 (2009).

[2] "Effects of a Carbon Tax on the Economy and the Environment," Congressional Budget Office, May 2013.

[3] "Further Sensitivity Analysis of Hypothetical Policies to Limit Energy-Related Carbon Dioxide Emissions," U.S. Energy Information Administration, July 2013.