The proposed US carbon tax – a recipe for disaster

A group of Republican elder statesmen have recommended that the US adopt a $40/ton carbon tax as the “most efficient and effective way of reducing CO2 emissions”. This post reviews the potential economic impacts of such a tax on the US energy sector. It concludes that the impacts on the oil and natural gas sectors would be comparatively minor but that the impacts on the coal sector would be severe. Electric utilities with a high percentage of coal in their generation mix could well be driven into bankruptcy.

The Carbon Tax Proposal:

This is contained in a document entitled The Conservative Case for Carbon Dividends, written under the auspices of the Climate Leadership Council, “an international research and advocacy organization whose mission is to mobilize global opinion leaders around the most effective, popular and equitable climate solutions.” It contains little in the way of detail, but its main provisions are:

…. a gradually increasing tax on carbon dioxide emissions, to be implemented at the refinery or the first point where fossil fuels enter the economy, meaning the mine, well or port ….. All the proceeds from this carbon tax would be returned to the American people ..… outright repeal of the Obama administration’s Clean Power Act and the elimination of most if not all onerous EPA regulations

And the rationale for the tax is:

Economists are nearly unanimous in their belief that a carbon tax is the most efficient and effective way to reduce carbon emissions. A sensible carbon tax might begin at $40 a ton and increase steadily over time, sending a powerful signal to businesses and consumers, while generating revenue to reward Americans for decreasing their collective carbon footprint

How would a $40/ton (I assume a 2,000lb short ton) carbon tax affect energy prices for CO2-emitting sources, specifically oil, natural gas and coal? To calculate this we need CO2 emissions data for these energy sources, which the EIA supplies in its January 2017 Monthly Energy Review (all of the data used in this review are from this source unless otherwise specified). Figure 1 plots running 12-month averages of monthly CO2 emissions from oil, gas and coal between January 1990 and October 2016, the last month for which EIA gives emissions data. For the most recent 12-month period for which data are available (November 2015 through October 2016) oil was responsible for 45% of total CO2 emissions from the US energy sector, natural gas for 29% and coal for 26%:

Figure 1: Running 12-month averages of monthly CO2 emissions from oil, gas and coal between January 1990 and October 2016

Impact of carbon tax on oil prices:

According to EIA the US petroleum sector, including the burning of gasoline, diesel, aviation fuel etc. and the manufacture of other refined products such as lubricants, asphalt and plastics, emitted 2,542 million tons of CO2 over the November 2015-October 2016 12-month period. Multiplying this by the $40/ton carbon tax yields $101.7 billion in tax revenue. With oil consumption over this period at 7.14 billion barrels this represents an increase of $14.24/bbl, or about 25% relative to the present ~$56/bbl price of Brent crude.

(It should be noted that calculations performed using published heat content values give significantly higher numbers. The EPA’s blanket estimate of 0.473 short tons of CO2/bbl , calculated using a heat content of 5.80 million btu/bbl for “average” crude, gives 3,377 million tons of CO2, tax revenues of $138 billion and a price increase of $18.92/bbl. I’ve not been able to find out why the EIA estimates are lower but have assumed they are the more reliable source of data.)

Impact of carbon tax on natural gas prices:

According to EIA the burning of marketed natural gas emitted 1,477 million tons of CO2 over the November 2015-October 2016 period. Multiplying this by the $40/ton carbon tax yields $65.2 billion in tax revenue. With natural gas consumption over this period at 28,432,240 million cu ft this represents an increase of $2.29/million btu, almost doubling the November 2015-October 2016 average spot price of $2.38/million btu at the Henry Hub, which is presumably where the carbon tax would be levied.

(Again, calculations performed using a gross heating value of 1,050 btu/cu ft and 117 lbs of emitted CO2/btu for natural gas give higher numbers. Tax revenues increase from $65 to $70 billion and the Henry Hub price goes up in proportion.)

Impact of carbon tax on coal prices:

According to EIA coal burning emitted 1,477 million tons of CO2 over the November 2015-October 2016 12-month period. Multiplying this by the $40/ton carbon tax yields $58.7 billion in tax revenue, with the tax applied at the mine mouth. With coal consumption of 733 million tons over this represents an increase of $80.13/ton, which almost triples the weighted average US coal price of $40.97/ton paid by electric utilities, the dominant coal consumers, in November 2016.

The increase will also fall disproportionately on low-btu coal. Table 1, based on data from Quandl, approximates the price increases that each of the US’s five major coal-producing regions will experience. (Note that the tons CO2/ton coal values are adjusted to an average of 2.0 to conform with the value estimated from the EIA’s emissions numbers):

Adding a $40/ton carbon tax increases mine mouth coal prices for higher btu coal by a factor of about three. The mine mouth price of low-btu Powder River Basin coal, however, increases by a factor of six.

Table 2 shows the results when the EIA’s estimates of between 205.7 and 215.4 lbs CO2 emitted per million btu of coal are used instead of the EIA’s emissions numbers. Mine mouth prices for higher-btu coal triple or quadruple and the price of Powder River coal increases by a factor of over seven:

Summing the oil, gas and coal tax estimates listed above gives 102+65+59 = $226 billion/year. This is within the $200-300 billion/year range estimated in the carbon tax proposal.

Impact of carbon tax on electricity prices:

A $40/ton carbon tax will inevitably drive US electricity prices up, and the amount by which they increase will depend on the generation mix, with those states with a heavy dependence on coal, and to a lesser extent natural gas, the most affected.

Figure 2 provides a graphical summary of the percentage of electricity generation contributed by oil, gas and coal in each of the fifty US states. The percentages are estimated from data provided by the Washington Post that cover January through May 2015, so they will tend to overstate the present contribution of coal and userstate the contribution of gas. Note also that these are in-state generation data that do not allow for exports of electricity to or imports from other states. Data on electricity consumption by generation source and state are not readily available.

Figure 2: percentage of electricity generation contributed by oil, gas and coal by state, January through May 2015

Between January and May 2015 39 of the 50 US states generated half or more of their electricity from fossil fuels. Only Hawaii and Alaska still used a significant amount of fossil oil to generate electricity.

The electricity price increases resulting from the carbon tax were estimated by dividing the total cost of the tax by total generation. This gives the following results for the November 2015 through October 2016 period (note that oil costs are based on a small amount of generation and are therefore approximate.)

We can evaluate the impacts of these added costs in three ways. The first is by adding them to power plant operating costs, which were estimated by EIA at $37.26/MWh for a fossil steam (i.e. coal) plant and at $33.24/MWh for a CCGT plant in 2015 (no estimate is given for oil-fired plants). Adding $40/MWh to the coal plant operating cost roughly doubles it from $37 to $77/MWh and adding $18/MWh to the CCGT plant cost results in a ~50% hike from $33 to $51/MWh.

The second is by adding tax costs to the levelized costs of electricity for new plants, which are estimated by EIA at $95.1/MWh for a conventional coal plant and at $75.2/MWh for a CCGT plant coming on line in 2020. It’s not clear exactly how a carbon tax would figure into an LCOE calculation, but simply adding the cash cost increases the LCOE from $95 to $135 for a coal plant and from $75 to $93 for a CCGT plant.

The third way is by adding the cost of the tax to electricity rates. I’ve done this for retail rates on a state-by-state basis by weighting the cents/kWh tax costs listed in Table 3 by the generation percentages shown on Figure 2. The state-by-state results in cents/kWh added are summarized in the left graphic in Figure 3. The overall impact is to increase average US retail rates by 2 cents from 12.75 to 14.75 cents/kWh, or by about 16%:

Figure 3: Left: impact of carbon tax on retail electricity rates by state, cents/kWh. Right, impact of carbon tax on retail electricity rates by state, percent increase.

The right graphic shows the percentage increase in retail electricity rates necessary to offset the carbon tax increase, once more assuming that it’s passed on to consumers at cost. In both cases, states with a high percentage of coal generation are the most seriously affected.


A $40/ton carbon tax would have the impact of increasing the US price of oil from its current level of around $56/bbl to about $70/bbl and increasing the Henry Hub natural gas price from $2.38 to around $4.67/million btu. These price increases will be inflationary and will also tend to depress economic activity. However, $70 oil and $5 gas are well within the range of historic oil and gas prices, and we can therefore expect that while they would have an adverse impact on competitiveness they would not cause the US to go into an economic tailspin.

Coal is a different matter. A $40 carbon tax roughly triples the price of US coal, taking it to levels not previously seen except briefly during the 2008/9 recession, and coal-dependent utilities in particular would need rate hikes to offset the impacts of the tax on their operations. As shown in Figure 3 these rate hikes are not small. Five states would require increases of 40% or more (Virginia more than 50%), twelve would require increases of 30% or more, 24 increases of 20% or more and 38 increases of 10% or more.

And herein lies the problem. US utilities are ruled by state public utility commissions, or their equivalent, that are either elected or appointed by the state governor. No state public utility commission would dare approve a 40%, a 30%, a 20% or maybe even a 10% retail electricity rate increase to keep coal plants in business – they would risk getting lynched. What would most likely happen is that the utilities would be told that this would be an excellent time to accelerate the conversion from high cost coal to “low-cost” renewables, particularly in the 30 US states that have adopted mandatory renewable capacity goals. The outcome would be that coal-dependent utilities would slowly, or in some cases rapidly, go bankrupt. The only solutions would be to repeal or greatly reduce the carbon tax on coal or a federal bailout of the coal industry, either of which would defeat the purpose of the exercise.

In summary, a $40/ton carbon tax could, and quite likely would, doom US coal-fired generation to extinction within a fairly short period, and since coal still supplies about 15% of total US energy consumption the consequences would be disastrous. Luckily, however, the proposers of the tax do not expect that the concept will be well received by the Trump administration.

This entry was posted in Energy, Political commentary and tagged , , , . Bookmark the permalink.

77 Responses to The proposed US carbon tax – a recipe for disaster

  1. David Ellard says:

    The calculations seem to assume that all the carbon tax due is actually collected (there are no evasive manoeuvres by the taxable companies).

    Unfortunately tax collection is like thermodynamics – you can never have 100% efficiency. To actually collect $40/ton on carbon at, say, 50% collection efficiency would need an actually imposed tax of $80/ton.

    So the effects would be even more drastic…

    • pyrrhus says:

      Utilities can’t really dodge taxes, they get audited every year. Unless they have loss carry forwards, they will pay 100%.
      Not to worry, however, this tax will never be enacted. It’s political suicide, and Trump doesn’t believe in the warming scam anyway.

    • Alex says:

      Taxing CO2 is a lot easier than taxing income – which is the main alternative. It is also very efficient – the UK’s fuel excise duty is one of the cheapest taxes to collect.

  2. John F. Hultquist says:

    All the proceeds from this carbon tax would be returned to the American people …

    … Republican elder statesmen …

    In the above,
    “All” means “maybe some” or “none”
    “elder” means “senile”
    ~ ~ ~ ~ ~ ~ ~
    Recently George P. Shultz’s grandson blew the whistle on Theranos, a company George was connected to via its board. Can we assume money was involved?

    Some of the story…

  3. Ben Jamin' says:

    Disaster? What disaster?

    Costs need to be internalised, else resources cannot be allocated efficiently.

    My only concern is $40 per ton enough?

    • $40/ton is probably enough to kill off coal and deprive the US of 15% of its energy. How much more do you want?

      • Ben Jamin' says:

        When costs are internalised, that benefits everyone.

        I assume you think burning fossil fuels causes no pollution. Particulate, CO2 or otherwise? In which case

        I personally think that when all costs have been internalised, nuclear would probably come out cheapest. But I’m more than willing to be proved wrong.

        Let a fair market sort out I say.

      • John F. Hultquist says:

        And how would the mining of “rare earths” in China, Copper in Chili, or bauxite in Australia be internalised?
        Each of these three, and many others, are real issues — unlike the CO2 thing.

        • Ben Jamin' says:

          It’s not just a CO2 thing.

          Any pollution or clean up costs should be paid for by mining operations. Just ask BP.

          Not sure how these things work in China or Chili, but I’d be surprised if Australia didn’t have the most stringent of regulations concerning this.

    • I don’t think Ben’s comment has not been given due diligence, as it is (as far as I’m aware) making the key point. My understanding of the economic argument for a carbon tax is that it is very simply to internalise externalities – it’s not explicitly to reduce emissions, although that would clearly be an outcome. It’s to try and ensure that we’re paying the full cost of emitting CO2 into the atmosphere. Doing so should, if we can price it properly, ensure that the market is operating effeciently. Of course, we should be internalising externalities for all energy sources – not just fossil fuels – but this isn’t an argument against a carbon tax.

      Something to bear in mind is that if the analyses are correct, then the cost of emitting one tonne of CO2 in the future is going to be higher than emitting one tonne today (because the damages are non-linear). Therefore the longer we delay introducing a carbon tax, the higher the initial carbon tax will have to be if we wish to fully internalise the costs. If you think that introducing a $40 per tonne carbon tax today will be disruptive, then introducing an even higher one at some point in the future will probably be even more disruptive.

      • The basic rationale for a carbon tax has nothing to do with internalizing externalities. It’s simply that CO2 emissions are damaging, or will in the future damage, society. But there is still no conclusive proof that they have done so, or will do so. To the contrary, the power plants, industries, cars, trucks, ships and aircraft that emit CO2 have greatly enriched us. Certainly without electricity we wouldn’t be having this discussion.

        What you call things has a lot to do with whether people perceive them as good or bad. I’m reminded of a petition that was circulated at the Copenhagen Climate Conference to ban dihydrogen monoxide (DHMO). Why ban DHMO? Because it’s a greenhouse gas that contributes more than any other to global temperatures, because it’s emitted in large quantities from power plant cooling towers, because it’s a major constituent of acid rain and because it’s fatal if inhaled. Over a hundred of the attendees are reported to have signed the petition. But DHMO is, of course, water. Maybe if we called CO2 “plant food” – which is basically what it is – we wouldn’t be having this discussion either.

        • Roger,

          The basic rationale for a carbon tax has nothing to do with internalizing externalities.

          I think this is simply wrong. I don’t know is this is a reliable source, or not, it’s simply the first I can find. It says:

          The purpose of a carbon tax is to internalise the externality. What this means is that the final price of the good should include the external cost and not just the private cost.

          It’s simply that CO2 emissions are damaging, or will in the future damage, society. But there is still no conclusive proof that they have done so, or will do so. To the contrary, the power plants, industries, cars, trucks, ships and aircraft that emit CO2 have greatly enriched us. Certainly without electricity we wouldn’t be having this discussion.

          Firstly, the first part of your comment is essentially the point behind an externality. Secondly, we can’t produce conclusive proof of future damage. That, however, doesn’t mean that we can’t try to estimate it. As far as I’m aware, almost all estimates – assuming we continue to emit CO2 into the atmosphere – are non-zero and positive. As far as the benefits are concerned, of course there are benefits to the use of fossil fuels, but that’s not an argument for not paying the full cost. If anything, the economic argument would be that the most efficient market requires paying the full cost.

  4. Dave Rutledge says:

    Hi Roger,

    Excellent post.

    From the right graph in Figure 3. of the ten states that would be most affected, 9 went for Trump. The other, New Mexico, is a swing states. I don’t think the tax will happen while Trump is President.


    • Hi Dave:

      That’s an interesting observation.

      I note that the 14 states with more than 50% coal in their generation mixes delivered 91 electoral college votes to Trump and only 14 to Clinton. Makes me wonder whether coal wasn’t a larger factor in getting Trump elected than is generally supposed.

      • Euan Mearns says:

        I find this interesting, especially when combined with Ed Hoskins’ comment. You just need to look at how pathetic the Republican offering was in the primaries that let Trump float effortlessly to the top. The Elephant in the room is republicans getting sucked into Green thinking. Donald has promised to kick Green Thinking and it’s Politically Correct ally into the long grass. I wish he would get a move on.

        • Dave Rutledge says:

          Hi Euan,

          “You just need to look at how pathetic the Republican offering was in the primaries”

          No. Take it from a former Republican. This was the best group of Republican presidential candidates in my lifetime. Trump just beat them.


        • Dave Rutledge says:

          Hi Euan,

          “Donald has promised to kick Green Thinking and it’s Politically Correct ally into the long grass. I wish he would get a move on.”

          It is not a parliamentary system. It has a completely different pace. So far he has removed the blocks for the pipelines.

          The next step is the vote on Scott Pruitt as the head of the EPA.


        • Dave Rutledge says:

          Hi Euan,

          Scott Pruitt is in. He knows where the bodies are buried.


      • Dave Rutledge says:


      • Dave Rutledge says:

        Hi Roger,

        To pile on.

        Clinton vs Bush 1992 among the top 15 coal producing states in 1994, Clinton won Montana, Kentucky, Pennsylvania, West Virginia, and Ohio. These states flipped to Trump. 54 electoral college votes.

        Greater than the margin of victory.


  5. John F. Hultquist says:

    RE: Figure 3 – Washington State is next to last

    We live in Washington State and get electricity from a Public Utility District (PUD).
    The monthly rate for residential service is:
    Facilities Charge . . . . . $19.00/month
    Energy Charge . . . . . . $0.0897/kWh

    I believe our PUD gets all its electricity from hydro. While I can see wind towers from home, I think all of that goes to western Washington, or south via the Bonneville Power Administration to California using the Pacific DC Intertie. Thus, we seem a little low. I ought to ask about rates in the Seattle area.

  6. edhoskins says:

    Why would anyone who had looked at the facts rather than the arm waving even think about taxing CO2 emissions ??

    It just plays into the hands of Green alarmists who want to drag down the Western world and the capitalist system that works.

    i don’t understand why Republicans want do do the work of agenda 21 and Chtistina Figures at the UN

  7. David B. Benson says:

    You might care to read “Six Degrees” by Mark Lynas. There is a good summary available online.

    • A book written 13 years ago by a rabid environmentalist with a degree in the history of politics isn’t going to contribute much to the discussion.

    • David B. Benson says:

      Mark Lynas spent a year in the Radcliff Library at Oxford researching his book. David Archer uses it as one of the texts for his freshman year climatology class at the University of Chicago.

  8. Peter Lang says:

    This explains why a carbon price will not succeed:

    Peter Lang, 2015. Why carbon pricing will not succeed

  9. Euan Mearns says:

    I guess I have conflicted views on C tax. I don’t like the idea of taxing one of life’s fundamental requirements. At one level its like a tax on windows or water. And I don’t like the idea of taxing the efficient in order to benefit the less efficient.

    But after reading Roger’s post I at least understand no how a carbon tax would work and if I were unduly concerned about CC then a C tax would be something I could be enthusiastic about.

    But curiously I have no objection to a gasoline tax in the USA – though its not really in my jurisdiction. It just seems daft to me that the USA has run up huge trade deficit and fights wars in the ME to secure imported oil supplies, when a tax on gas could bring US motoring “down” to European levels. The analogy I’d suggest is that water comes tax free but its OK to tax sugary drinks.

    In my next post we will see how nat gas consumption has fallen in Scotland, probably in response to price pressure. It seems immoral to me for government to tax electricity and home heat thus spreading energy poverty.

    • Thinkstoomuch says:


      First trade deficits are more a function of lack of savings and excessive spending. Where do you think the money comes from. Rest of the world trusts and extends credit. You all are pretty much daft in my opinion.

      I found this an interesting read.

      As far as the motoring. Consider the following graphic.

      With the population density only a 3rd to the 8th it is seriously going to be hard to cut that number. Same reason that outside of some cities mass transit fails miserably. Works very well in Europe.

      The average American commutes 16 miles one way to work. According to a quick bing search.

      Just carpooling would be a great way to cut 1/4 or so of the miles. Problem is, I think, the US not wanting to give up control over their lives and movements. Probably poorly stated on my part. A really hard concept to get convey.

      Could say it all started with things like the Oregon trail or what made America in the first place.

      Then you have idiots like me that go on a 12-16 thousand mile scenic drives around the US yearly. Of course my chosen vehicle has gotten ~50 MPG since I started that.

      Here is a real time graphic that may explain much of the problem that the US population has worrying about pollution.

      Why would anybody live in Europe based on that map? 😉 : lol :


      • T2M

        While the population density is quite low for USA, that hides that a lot of Americans live in high density areas. Depending on references you use, 60-80% of Americans live in urban areas that we can say are high density. That is why the average commute is not ridiculously higher than the UK (16 versus 10 miles).

        Car pooling is an excellent solution to many and a great cost cutter. However even in the UK I have to say few people do it.

        • Thinkstoomuch says:

          I agree to all of that. Though your 60-80% may actually be low. I live in a fairly high density myself in the winter. Still the nearest real grocery store is 2 miles away. Next is more than 3.

          According to 2016 Federal HighWay Administration numbers the “average” US car gets driven 16,550 miles.

          For the UK going by a BBC story, in 2013 the average car gets driven 7,900 miles. Also according to that article commuting only accounts for 2,800.

          Is that 10 miles 1 way or two way? The 16 mile number I quoted was one way. The “average” US commuter is putting the same mileage getting to work as the entire mileage on the car in the UK. Based on 50/5 day weeks.

          Apples and oranges comparison for years as there is a significant difference in fuel prices and some big assumptions between those two years.

          All this actually ties to the post in a way as a 25% increase in the cost of oil is going to have a significant drag on the US Economy. Everything has to be shipped how does it get to the consumer by truck. Though when the price of oil goes up more will get loaded onto trains between major cities.

          Consider according to the EIA in 2005 the price for Brent crude was 54.57 in 2010 it was 79.61. Lots of variation and it wasn’t the only driver. but …


    • meliorismnow says:

      One way to do it without spreading energy poverty is to exempt small users (eg a tier system like in Southern CA). I personally don’t like taxing carbon but I would like to tax (health-affecting) pollutants and nonrenewable resources in general (to preserve them for future generations). If we can only agree on a carbon tax I guess I will go along.

      • Alex says:

        But it’s all driven by small users – so they can’t be exempted. They end up paying for it even if big business is subject to the tax.

        What they can be is partially compensated – perhaps by reduced income tax or free medical insurance.

        The Government would try and match winners and lowers, but that’s not always possible, The winners quietly go about their business, whilst the losers scream blue murder and demonstrate against their politicians.

    • Ben Jamin' says:

      There are plenty of other levers they can use to mitigate any such worries, should they wish. Obvs.

  10. Brough says:

    Many thanks Euan for bringing up the moral issue of VAT on gas and electicity. Up till now it has been a one man campaign by myself to have this abolished, having written to my MP several times on the matter. I go to work most day, 9 until 5 for a business that is registered for VAT and thereby claiming the tax back whilst the sick and elderly are left at home to feel the full winterly draft of the HMRC. VAT on gas and electricity was introduced in the UK back in 1994 at an initial rate of 8% and being reduced to 5% in 1997. Give my MP her due, she has written back to me several times, but says that it is now out of UK government hands and it is a EU wide policy to apply VAT on energy. My hope is brexit will at least bring some relief to the sick and old

  11. Some data on the “Republican elder statesmen” who proposed the carbon tax.

    First, all eight of them must believe that climate change is a threat or they wouldn’t have signed on to the carbon tax proposal. This immediately puts them at odds with the Republican party rank-and-file, only 15% of whom think that fighting climate change should be a priority according to a recent Pew poll.

    Second, four of the eight sponsors have distinctly un-Republican environmental leanings. Ted Halstead is the founder of the Climate Leadership Council, “ whose mission is to mobilize global opinion leaders around the most effective, popular and equitable climate solutions”, Gregory Mankiw appeared in Leonardo DiCaprio’s 2016 perils-of- global-warming film Before the Flood and Rob Walton is Chairman of the Executive Committee of Conservation International, the goal of which is “to protect the most fundamental things that nature provides to all of us: our food, our fresh water, our livelihoods and a stable climate.” But Hank Paulson outdoes them. He’s already donated $100 million to environmental causes and has pledged his entire fortune for the same purpose upon his death. So much for the kids and grandkids.

    Third regarding the “elder” bit. It turns out that five of the eight sponsors are younger than I am. Time marches on.

    • Ajay Gupta says:

      According to Yale Program for Climate Coomunication:

      About half of Trump voters (49%) think global warming is happening, while fewer than one in three (30%) think global warming is not happening.

      Almost half of Trump voters (47%) also say the U.S. should participate in the international agreement to limit global warming. By contrast, only 28% say the U.S. should not participate.

      More than six in ten Trump voters (62%) support taxing and/or regulating the pollution that causes global warming, with nearly one in three (31%) supporting both approaches. In contrast, only about one in five (21%) support doing neither.

      More than three in four Trump voters (77%) support generating renewable energy (solar and wind) on public land in the U.S. 72% support more drilling and mining of fossil fuels on public land in the U.S.

      Seven in ten Trump voters (71%) support funding more research into clean energy and providing tax rebates to people who purchase energy efficient vehicles and solar panels (69%).

      Over half of Trump voters (52%) support eliminating all federal subsidies for the fossil fuel industry, nearly half (48%) support requiring fossil fuel companies to pay a carbon tax and using the money to reduce other taxes by an equal amount, and almost half (48%) support setting strict carbon dioxide emissions limits on existing coal-fired power plants to reduce global warming and improve public health, even if the cost of electricity to consumers and companies would likely increase.

      Half of Trump voters say transitioning from fossil fuels toward clean energy will either improve economic growth (29%) or have no impact (21%).
      Nearly three in four Trump voters (73%) say that, in the future, the U.S. should use more renewable energy (solar, wind, and geothermal). One in three (33%) say that the U.S. should use fossil fuels less in the future.

      • Yes, the renewables rot runs deep in US society. But in this case we have to consider the source of the poll – the Yale Program on Climate Change Communication – which among other things seeks to “educate the public about climate change; and help build public and political will for climate action.”

        And talk about loaded questions:

        One year ago, the United States signed an international agreement in Paris with 196 other countries to limit the pollution that causes global warming. Do you think the U.S. should participate in this agreement, or not participate?

        Governments can reduce the pollution that causes global warming in two main ways: (1) Tax pollution (require companies to pay a tax on the pollution they emit, which encourages them to reduce their emissions). (2) Regulate pollution: (legally require companies to limit the amount of pollution they emit). In general, which of these two approaches to reducing the pollution that causes global warming do you prefer, if either?

        Another poll gets different results:

        Just 25 percent of people who voted for Donald Trump believe climate change is occurring now and is caused by human activity, according to a recent survey by researchers from the University of New Hampshire. That’s in comparison to the 90 percent of Hillary Clinton voters the survey says believe human-induced climate change is happening.

        • Ajay Gupta says:

          Why just consider the source in that case? In both cases, however, it seems that ~70% of US wants action on climate change and around same percentage want preference given to RE over FFs.

          • Thinkstoomuch says:

            READ the survey Roger linked and you replied to. I just looked at the pretty pictures and realized that you hadn’t.

            As a high priority Carbon tax. 6% ( of President Trump’s voters) and 30% (of all other voters)

            Sure somebody ought to “take action” about the little green men from Mars as well. Maybe Yale can do a study.


          • Ajay Gupta says:

            T2M thanks for the lecture but you obvy didn’t read my comment properly.

            I didn’t actually do the Yale survey nor do I work for the trump-hating Washington post but I read them both so take it easy please.

            The point is in all the surveys on this thread, which span a year, the trump supporters move around on the subject. But the country as whole is relatively consistent in supporting action on climate change and preferring RE projects over FF. None of the surveys in Rogers link say much different in that respect.

            Honestly I didn’t think that was such an offensive point to make.

          • JerryC says:

            That people express a preference to pollsters for RE over FF is neither here nor there. The question is how much extra do they want to pay in order to fund RE projects. In the US, the answer to that question has generally been “Almost nothing”.

          • Ajay Gupta says:

            If you take a look at all of the polls on the thread, there are answers to what US thinks about paying more for RE. Maybe not consistent.

  12. Phil Chapman says:

    In connection with this discussion, let me shamelessly promote the paper entitled “Losing the Geomagnetic Shield: A Critical Issue for Space Settlement” that I have just published in the online Space Settlement Journal maintained by the National Space Society at While the focus is on (surprise!) space settlement, I discuss the increasing likelihood that we are in the early phases of a geomagnetic excursion (a.k.a. a geomex), like the Laschamp Event 41,000 years ago. While it is far from certain, it is possible that disintegration of the field could lead to severe global cooling before the end of this century. The Appendix discusses the evidence for this conjecture, and the consequences for the planet as well as for the extraterrestrial enterprise.

    This paper, on a rather obscure website visited principally by my fellow space nuts, is in part a dry run for another more technical paper on the geophysics involved and the implications for climatology, which I expect to publish soon, somewhere with a wider readership. This is sure to get me attacked, because the mere possibility that this new geophysical phenomenon could lead to cooling suggests that we should postpone expensive measures to control anthropogenic global warming (including carbon taxes) until we see what happens in the next few decades.

    I enjoy being attacked by the True Believers, but it is important to be as fireproof as possible. I would therefore appreciate criticism of the space settlement paper, since it could help me improve the argument in the upcoming climatological one.

  13. Ed Brown says:

    I appreciate the data in this article. It is well presented. The conclusion that utilities that currently use a lot of coal would go out of business is not credible. The regulators will ensure the utilities remain solvent. Otherwise they would stop generating power and we’d have a real mess on our hands. The statement that the price increases would tend to depress economic activity lacks quantification. My guess is that the reduction in GDP would be so minor that it is not measurable.

    All in all, I think a carbon tax is a good idea. I believe even after imposing this tax, the prices for energy in the US would still be lower than they are in Europe; it seems unlikely this would dramatically damage the US economy. Governments need to raise revenue to provide services and this is as good a way to do it as any, and better than most. However, in the current political environment, this is not even dead on arrival. It is more like stillborn; the people proposing it are lonely voices crying out in the wilderness and no one in power is even pretending to listen to this idea.

    But I truly appreciate the post since it brought solid data to the table. Thank you and best wishes.

    • Roger Andrews says:

      Ed: Thank you for your vote of appreciation. But I’d be interested to know where the regulators who will keep the coal companies solvent are going to get the money from.

      • Ed Brown says:

        Hello Roger,

        In my opinion, the regulators will pass price increases onto the customers of the utilities. For instance, in West Virginia, the current price is around 10 cents per kWh (based on a quick use of Google). Increasing that by ~ 4 cents or ~ 50% (as per the tables in the post) results in a price of ~ 15 cents per kWh. This is still quite low.

        I live in Connecticut, and our prices are approximately 20 cents per kWh (from memory, not from Google).

        People will complain if prices increase, no doubt. But there is a thing called regulatory capture also. I firmly believe the utilities will suffer somewhat in the short term, as the regulators will not allow them to immediately pass 100% of their cost increase through to consumers as a step change. But the regulators will ensure the utilities remain solvent at all times, and will allow them to gradually get healthy again as well.

        In your note above you asked about coal companies (as opposed to utilities that use a lot of coal). I would expect numerous coal companies would go through bankruptcy proceedings. That does not mean they necessarily stop producing. Some may, others won’t. It does mean their ownership changes, and implies that you really don’t want to own their stock if this policy change was coming. In fact you might want to consider shorting it.

        While this is not a pleasant story for these businesses, this is unfortunately part of capitalism. There were a lot of companies that used to make buggy whips and horse saddles and such in the past also. Things change over time.

        Thank you again for the blog. I enjoy reading and learning from you and Euan.

  14. tom d says:

    I apologize if this has been discussed before. But my first thought on a $40/ton carbon tax is what does that do to the price of a solar module. If the embodied energy in the panel comes from Chinese diesel power mining equipment, manufactured with the power from a coal fired plant, shipped half way around the world on a diesel/bunker fuel cargo ship, offloaded and transported on diesel truck…. estimates 2016 Q3 utility scale fix tilt solar at $1 per watt and residential at $3.00 per watt. Per Green media, in 2016 Chinese solar companies Jinko & Trina shipped 13.3 GW of PV modules. If an carbon import tax was placed on those solar modules – any estimates how much they would cost? Any guess on what a 3 MW wind turbine would cost?

    • David B. Benson says:

      Estimates of lifetime greenhouse gas emissions for different generation types can be found in the IPCC WG3 report. Much the same can also be found on a World Nuclear Association page devoted to the topic. In both sources it is stated that wind and nuclear tie for the lowest while solar panels, utility scale, are about twice as much.

      • tom d says:

        If I am understanding the concept of a carbon tax right, the upstream hydrocarbon fuel purchase/carbon use is taxed – not the end use product (i.e. power plant, car, bushel of wheat) If a buy a car, the dealer doesn’t won’t include a ‘carbon tax’ on the invoice based on a IPCC estimated lifetime greenhouse gas emissions used to make that car, that I will pay to the EPA/IRS separately. The carbon tax will be ‘built into’ all the raw materials.

        “According to a commentary published in Nature Geoscience solar and wind facilities require 15 times more concrete, 90 times more aluminum, and 50 times more iron, copper and glass than equivalent scale nuclear or dangerous fossil fuel facilities.” – BNC Sustaining the Wind part 1

        “According to EIA the US petroleum sector, including the burning of gasoline, diesel, aviation fuel etc. and the manufacture of other refined products such as lubricants, asphalt and plastics, emitted 2,542 million tons of CO2…”

        I am wondering how a carbon tax might affect the upfront capital costs of solar and wind.

    • Ajay Gupta says:

      Have to remember that the tax is revenue neutral. The collections are used for RE growth and new projects and efficiency additions and rebates to low earners.

  15. Alex says:

    Roger, I think this analysis only focuses on one side of the fiscal equation. Of course a $40/ton CO2 tax is going to push up cost of fossil fuels, and these costs are borne by the consumer. The other side of the equation though, is what is done with the revenue?

    If we assume that Governments and taxation are necessary, then it clearly makes sense to tax things we want less of, and reduce or eliminate taxes on things we want more of.

    That generally means taxing externalities, chief of which are pollution and CO2 production. And reduce taxes on earnings and wealth creation, which we all (except the Green party) want more of.

    In the USA, taxing carbon, and reducing taxes on earnings, would lead to reduced usage of fossil fuels and increased earnings. Part of the increase in fossil fuel costs would be offset by a fall in prices across the world. Bad news for Saudi Arabia and Russia, but hey, it’s America First.

    I also like taxes which are partly avoidable. So I really like the national lottery, because other people volunteer to pay for things – like Olympic success – and it doesn’t cost me a penny. Same with cigarette taxes – thank you smokers for funding the Government.

    Fuel taxes are partially avoidable. You can’t seriously complain about high petrol costs in the UK, if you drive a 2 ton gas guzzler for the school run. You can avoid half the fuel cost by getting a Toyota Auris (or a Golf Blue Motion – but then you chuck out other pollutants), or all of it with a bike. Likewise, you can avoid high gas charges by insulating your house better. And that is the behaviour change aspect – there would be limited point in a CO2 tax if people couldn’t avoid it.

    So if a carbon tax can change behaviours to some extent, and lead to reduced taxes on more important things like incomes, then it should be favoured.

    • Thinkstoomuch says:

      So how do my two 80+ year old neighbors avoid the air cooling costs associated with 80+ degree F lows and 90+ degree highs F. While on a fixed income. Mighty compassionate of you.

      For me figures out to the proposal $240 a year based on past personal CO2 emission(you do keep track of that don’t you). Not sure about how much my food and such would go up. Still not even a blip spend more than that on e books each year. But then again I am not elderly.

      Those “sin” taxes and lotteries were generally sold initially as ways to fund schools and such. Instead the those funding stayed the same and excess was returned to the general fund to expand government(oh look we have a more money) . Just like the CO2 tax. “Well I guess we need more agencies and employees to distribute the largess.” Very ineffciently. At least here in the US. Same way most of the voters deal with excess money on April 15th, so to be expected.

      Which did more to elect President Trump then anything about coal jobs, IMNSHO.

      Think I need to step away from the blog,

      • Alex says:

        If the scheme were perfectly designed, you’re two neighbours would pay $X more for their energy, and receive $X in tax credits or pension supplements. So no change.

        However, they may now ask their children – or a contractor – to improve the insulation of their property*. With higher energy prices, this now has a positive payback, and with this investment they are now better off.

        Of course, no system is perfectly designed. If your two neighbours end up better off, they won’t say anything. If someone else down the road is worse off, he’ll scream blue murder.

        *Now this is an invention worth watching for “summer insulation”:

        • Thinkstoomuch says:

          Yep, just like the New York State cigarette tax that was sold as funding for health care. Silly me just another way to get the politicians more money to waste.

          Oh and the New York State Lottery was for schools that ended up being another way for the politicians to spend more money except this time they only get 30% of the total.

          Which means people already have a plan but in your fair minded approach you have the government create another program to spend money.

          Sorry I am all out of trust. Especially with new taxes. You even crow about how others have been misused and abused in relation to how it was originally sold to the voter.

          For the new material.

          “The new film works by a process called radiative cooling. This takes advantage of that fact that Earth’s atmosphere allows certain wavelengths of heat-carrying infrared radiation to escape into space unimpeded. Convert unwanted heat into infrared of the correct wavelength, then, and you can dump it into the cosmos with no come back.”

          Have you noticed all these articles on it fail to mention a thermal budget. It will lower a house from 37 C to 20 C. Though the article in science said it would only lower an object 10 C.

          What house, how many floors? What if it already has insulation, how much insulation?

          Though I do find its properties fairly interesting and as it transmits IR that is transparent to the atmosphere why are we arguing about warming. Enough of this will solve the problem all together. Need more ice lay some on an ice heat goes into space and the ice grows. Need less take it back up. Spread a bit in the desert …

          I can even see new uses for a new federal agency and that new carbon tax. We are going to do it for their own good …

          For me, heck with the roof attic is already insulated, a concrete book house here in South FL has 4 walls that I would love to cool about 300 days a year. Of course the IR would be directed other than into space. 🙂

          I will believe it when I see some real numbers.


    • Roger Andrews says:

      Alex: The carbon tax would probably reduce oil and gas emissions by a small amount and ultimately lead to the demise of coal. All other things being equal this would reduce US emissions by maybe 30% – significant but well short of total decarbonization.

      The problem, however, is what do we replace coal with? I have no doubt that in the minds of most politicians all we have to do is build more wind and solar parks and install more Tesla powerpacks, but that’s not going to work. And we can forget about CCS. So we’re back to nuclear again. And with $200-300 billion a year to spend we can build lots of nuclear plants.

      • Alex says:

        Roger, the nice thing about a carbon tax, is that the politicians (at the tope level) don’t have to worry about what to replace the coal with. Maybe it will be gas plus CCS, maybe renewables with gas capacity, maybe nuclear. That can be left to the market. (In reality, intervention is still needed as this is all highly regulated).

        I’d expect the price effect alone to have a smaller impact on CO2 emissions in the short term. But if it spurs on development – e.g. electric cars, and molten salt reactors, the long term reduction would be greater.

    • Ajay Gupta says:

      It’s revenue neutral. The tax goes towards spending on RE, efficiency gains and a rebate for the lower earners. A similar plan in Alberta Canada is actually expected to make money for some people.

    • Phil Chapman says:

      You say ‘it clearly makes sense to tax things we want less of, and reduce or eliminate taxes on things we want more of.” The problem is of course that “we” may disagree about which things we want less of.

      If the purpose of carbon taxes is to curb emissions of CO2, I object because I think (1) that global warming is a good thing, because it is largely limited to high latitudes where the climate is now unpleasantly cold; (2) that water vapor feedback may well be negative (because clouds form), so the warming effect of CO2 is exaggerated; and (3) that more CO2 is beneficial because it makes the planet greener.

      Two relevant quotes:
      C.S. Lewis: “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience.”

      Tom Sowell: ““What socialism, fascism and other ideologies of the left have in common is an assumption that some very wise people — like themselves — need to take decisions out of the hands of lesser people, like the rest of us, and impose those decisions by government fiat. The left’s vision is not only a vision of the world, but also a vision of themselves, as superior beings pursuing superior ends.”

      • Ajay Gupta says:

        ~70% of US wants action on climate change and prefers RE projects over FFs. There’s a couple links above.

        • Euan Mearns says:

          Half of Trump voters say transitioning from fossil fuels toward clean energy will either improve economic growth (29%) or have no impact (21%).

          OK so 29 + 21 = 50

          And this from the Yale program on Climate Change Communication. Its a disgrace packaging survey data in this way. The real (as opposed to fake) narrative is that only 29% of Trump supporters believe clean energy will improve economic growth.

          This sort of subversive BS from academia needs to be brought to a swift end.

          • Ajay Gupta says:

            Yeah I noticed that too and thought it was weird. But if you don’t like the Yale data, the national level numbers are consistent with other polls. Something like 70% of US citizens are in agreement.

          • Ajay Gupta says:

            Yeah it should say “half see no negative impact” or something like that

        • Phil Chapman says:

          Ajay: You are advocating what James Madison called the tyranny of the majority. de Tocqueville warned us about the same problem, which he called the omnipotence of the majority, American democracy does NOT mean unfettered majority rule.

          Your data are also suspect. Any poll, like the one from Yale, that refers to “the pollution that causes global warming” is manifestly fraudulent. Emissions of CO2 may or may not be a problem, but it is not a pollutant. It is plant food, as necessary as oxygen to life on this planet.

          Even if it were true that a majority of Americans “want action on climate change,” that does not justify imposing their delusions on the rest of us. The public has been deceived by a constant drumbeat about how “the science is settled,” which is clearly not true (since if it’s settled it isn’t science). The truth is that the subject remains deeply controversial, and genuine scientists recognize that there is a great deal that we do not understand about what influences the climate.

          In a free society, the government needs to be very cautious about imposing penalties or expending public money. We should only accept collective action where there is no alternative (e.g., national defense) and even then we should seek alternatives to involvement of government bureaucrats. To the maximum extent possible, freedom demands that people be allowed to do whatever they wish, without imposition of rules with which they may not agree, and that policies be decided by Adam Smith’s invisible guiding hand, and not by the opinions of ideologues or the schemes of demagogues.

          • Ajay Gupta says:

            I’m not advocating anything, actually. And it’s not my data. Just responding to someone’s fears of fascism and “taking the decisions out of the hands of lesser people.”

  16. In response to Roger Andrews February 15, 2017 title “The Proposed U S Carbon Tax—a recipe for disaster I agree with completely, maybe not for all the same reasons but nevertheless we agree.
    Roger Andrews calculates the initial coat of the program or tax to be $226 billion dollar per year, $102 billion from oil, $65 billion from Gas, and $59 billion from Coal.
    Roger rightly concludes that the people of West Virginia would never stand for a 50% increase in their electricity rates. Currently 95% of their electricity comes from Coal fired plants.
    In summary Andrews concludes: “A $40/ton carbon tax could, and quite likely would doom U S coal fired generation to extinction, within a fairly short period and since coal still supplies about 15 % of the total U. S. Energy consumption the consequences would be disastrous. For the world it is more like 27 %.
    Luckily however, the proposers of the tax do not expect that the concept will be well received by the Trump Administration.”
    I have one other big reason to support Andrews conclusion I like many note worthy scientists such as Dr. Richard Lindzen from MIT, Dr. Alan Carlton, MIT and Dr. Neil Frank, FSU all tell me and others CO2 is not the problem the Greenies of the world would have you believe. In fact atmospheric temperatures as measured by satellites the last 18 years have been essentially flat for the past 18 years in spite of a continuous increase in the average of CO2. As a part of the whole atmosphere is still less than ½ of 1%.
    Ten to twenty years out if such a carbon tax was imposed not only in the United States historians would be relating what a dumb policy that was as people have to work much harder to pay their energy bills and the poor of the world shiver in the cold.

  17. keith harrison says:


    Fraser Institute recently examined revenue neutrality in British Columbia a province with a carbon dioxide tax for about 5 years.

    Here is an article about the core elements of the study:

    • Ajay Gupta says:

      The BC plan is the worst. Look into studies that improved the BC plan and were used to generate the Alberta and Canadian national carbon taxes. Available from Pembina Institute, CD Howe, Parkland Institute.

  18. JerryC says:

    There’s not going to be any carbon tax in the US while Trump is in office, you can take that to the bank.

  19. Sanjeev Ghotge says:

    Can someone please advise Mr Trump to pass an Executive Order requiring all US Govt agencies to report in metric system and do away with ol’ fashioned units like BTU, short tons, barrels of oil, cft off gas etc. That will certainly make America great again.

  20. gah789 says:

    A minor or major point – depending on your perspective. If you read the original proposal it refers to a tax of $40 per ton on “carbon”. The blog seems to have interpreted this as $40 per ton of CO2 (tCO2). However, there is a long history of referring to taxes per ton of C (tC) as carbon taxes and most of the early discussions of carbon taxes use that metric.

    $40 per tC translates (roughly) to $10.9 per tCO2. Such a tax would have nothing like the impact described in the blog, though it would provide a minor disincentive on the use of coal and to cut CO2 emissions from other sources. It would be significantly below the carbon floor price in the UK – another confusing use of the term “carbon”.

    Given the provenance of the proposal and the way in which it is written my guess is that they mean $40 per ton of C. If they had really meant $40 per tCO2 then I would have expected reference to the EPA’s Social Cost of Carbon, which is close to that level. Maybe there is other material that clarifies this as the main document is pretty vague.

    • The proposal refers to both CO2 and carbon. I’ve interpreted it to mean CO2 because this gives the expected $200-$300 billion in annual tax revenue. A tax on emitted carbon would yield only $55-82 billion.

Leave a Reply