Author: Magnus Haw
Last updated: Feb. 24, 2019, 8:35 p.m.

Effects of a carbon tax: The REMI report : comprehensive economic study of the impact of CCL’s revenue neutral carbon fee on the US economy. Results from the study show economic growth driven mainly by the dividend returned to households.

This report examines the economic, climate, budgetary, power generation, and demographic impacts of implementing a revenue-neutral carbon tax for nine regions of the United States. The carbon tax would begin in 2016 with a rate of $10 per metric ton of carbon dioxide and escalate in a linear manner at $10 per year. The point of assessment for this tax would be extraction, although, after significant pass-through of the cost from upstream producers to downstream consumers, everyone in the energy supply chain would feel the influence from the carbon tax. Every dollar—100% of proceeds—from the carbon tax would enter into a “fee-and-dividend” (F&D) system that refunds the money to all American households with checks or direct deposits on a monthly basis. Every household would receive its share based on the number of adults (over 18) living there with dependent children (under 18) counting half as much as adults (and two being the maximum). The policy would also include a border adjustment to correct for carbon leakage outside of American borders and preserve competitiveness.

The results of the study demonstrate that there are probable benefits to taxing carbon dioxide emissions and returning the money to consumers through F&D. The following are highlights of the national level results of the study in 2025.

  • 2.1 million more jobs under the F&D carbon tax than in the baseline
  • 33% reduction in carbon dioxide emissions from baseline conditions
  • 13,000 premature deaths saved from improvements in air quality.

These principal results are not to say the outcome is universally positive, and there are certain industries and regions in the United States that may do better or worse under a carbon pricing system. For example, the industries tied directly to households, such as healthcare, retail, and housing construction, tend to do well because F&D increases the overall level of consumer spending. There are other important results in 2025. The F&D rebates return nearly $400 billion to households—or almost $300 per month for a family of four, and the carbon tax aids in retirements of coal plants and accelerates investments in wind, solar, and nuclear power. The impact to the total cost of living is less than 3% from the baseline, and gross domestic product (GDP) increases between $80 billion and $90 billion.

This study integrates three models with different, important perspectives on the economy and energy. The first is ReEDS (Regional Energy Deployment System) built by the National Renewable Energy Laboratory (NREL) and run by Synapse Energy Economics,Inc. from Cambridge, Massachusetts. The ReEDS model predicts the type of power generation in use (such as coal, gas, nuclear, wind, or solar) in different parts of the country after implementing a carbon tax. The second is the Carbon Analysis Tool (CAT), which draws its assumptions from the Annual Energy Outlook (AEO) produced by the Energy Information Administration (EIA). CAT forecasts carbon dioxide emissions and revenues from the carbon tax. The third is PI+, a dynamic, multi-regional model of subnational units of the United States economy. PI+ includes variables describing the changing energy prices, investments, and air quality and produces an impact study with results on job creation, GDP, income, and the differential impacts between different income groups, industries, and regions.