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New Study Shows No More Excuses to Reject Fee on Carbon

Jun 09, 2014 | Updated Aug 09, 2014

Beneath the hyperbolic rhetoric and pushback last week surrounding the new EPA regulations to limit carbon emissions is a fundamental truth that can no longer be ignored: Inaction is not an option on global warming. If critics think EPA regulations are a bad idea, they have to come up with a better one or hold their tongue.

In other words, it's time to put up or shut up on global warming solutions.

One of the solutions that continues to get a bum rap is a fee on carbon, which Republicans routinely associate with the term "job killer."

Beginning today, however, such unqualified claims can no longer be made. That's because a new study from Regional Economic Models, Inc. (REMI), shows that a steadily-rising fee on fossil fuels, with revenue returned to households, will actually add 2.1 million jobs in the U.S. over the next 10 years while reducing greenhouse gas emissions 33 percent.

Since 1980, REMI has provided economic impact studies for governmental and private-sector clients including the Atlanta Regional Commission (ARC), consulting firm Ernst & Young, the California Department of Finance, the University of Michigan, the Massachusetts Institute of Technology (MIT), and the Tennessee Valley Authority (TVA).

Translation: REMI has a reputation to uphold, and if they didn't do quality work, they wouldn't attract the kind of prestigious clients who seek their services.

The REMI study looked at the economic impact of a steadily-rising national fee on carbon-based fuels that returns revenue in equal shares to all households. The fee, applied at the point of extraction or import, would start at $10 per ton of CO2 and increase by $10 per ton each year. Border tariffs, to keep the global playing field level for U.S. companies and discourage off-shoring of carbon emissions, were factored in. Revenue from the tax was divided in equal shares, with one share going to each adult and one half share going to each child, up to two children per household.

By giving all the revenue back to households - which shields families from the economic impact of higher energy costs - we can allow the fee to rise to a level that achieves the much-needed reductions in greenhouse gas emissions. By 2035, according to the REMI study, the escalating carbon fee will reduce emissions by 52 percent, putting us on track for the mid-century target of the 80 percent reductions necessary to avoid busting the "carbon budget" that limits warming to manageable and adaptable levels.

Other findings from the REMI study:

  • National employment increases by 2.8 million after 20 years. This is more than a 1% increase in total US employment we don't get without a carbon fee.
  • Because of improved air quality, 13,000 lives are saved annually after 10 years, with a cumulative 227,000 American lives saved over 20 years.
  • $70-85 billion increase in GDP from 2020 on, with a cumulative increase in national GDP due to fee-and-dividend of1.375 trillion.
  • Size of monthly dividend for a family of four with two adults in 2025 is288; in 2035 it's396. Annually, this is3,456 per family of four in 2025.
  • Electricity prices peak in 2026, then start to decline.
  • Maximum cost-of-living increase by 2035 is 1.7-2.5%, depending on region.
  • Real incomes increase by more than $500 per person in 2025. This increase accounts for cost of living increases.
  • Electricity generation from coal is phased-out by 2025.

The significance of this study cannot be overstated: A highly respected economic modeling firm has found that a fee on carbon, if done the right way, will actually add jobs and improve the economy. This changes the whole conversation around global warming and the remedies to limit its impact.

It comes at a time when Republicans and coal-state Democrats are attacking the new EPA regulations to limit greenhouse gas emissions at power plants, threatening to challenge the rules through congressional and judicial action. But such threats will prove rather empty: President Obama wields the veto pen, and EPA is currently batting 1.000 with challenges before the Supreme Court.

If Republicans and some Democrats are serious about avoiding new regulations - and the expansion of government that comes with it - they have one recourse: Enact a market-based solution that is revenue-neutral.

With carbon fee-and-dividend, they have a solution endorsed by no less than former Reagan Secretary of State George Shultz. Other conservative economists, like George W. Bush economic adviser Greg Mankiw, also support a revenue-neutral fee on carbon. They see it as the most efficient and effective way to bring down greenhouse gas emissions because it corrects the distortion in the marketplace that leaves polluters unaccountable for the real cost of fossil fuels. Correct this distortion, they say, and the free market will work its magic.

For those seeking for an alternative to EPA regulations, look no further. Excuses for inaction, lame as they were to begin with, are now neutralized, thanks to the REMI study.