Climate change seems like this complicated problem with a million pieces. But Henry Jacoby, an economist at MIT’s business school, says there’s really just one thing you need to do to solve the problem: Tax carbon emissions.

“If you let the economists write the legislation,” Jacoby says, “it could be quite simple.” He says he could fit the whole bill on one page.

Basically, Jacoby would tax fossil fuels in proportion to the amount of carbon they release. That would make coal, oil and natural gas more expensive. That’s it; that’s the whole plan.

Jacoby’s colleague John Reilly told me the price of gasoline might rise by 25 cents a gallon in the first year. Over time, that would increase. By 2050, Reilly figures the carbon tax would add about $1 to the price of every gallon. Across the economy, prices of energy-intensive goods and services would rise. This would encourage people and businesses to be more efficient.

This is why economists love a carbon tax: One change to the tax code and the entire economy shifts to reduce carbon emissions. No complicated regulations. No rules for what kind of gas mileage cars have to get or what specific fraction of electricity has to come from wind or solar or renewables. That’s by and large the way we do it now.


Economists Have A One-Page Solution To Climate Change
David Kestenbaum
NPR, June 28, 2013

Category: Energy, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

31 Responses to “On the Carbon Tax”

  1. Petey Wheatstraw says:

    “By 2050, Reilly figures the carbon tax would add about $1 to the price of every gallon.”


    An inflated dollar or a deflated dollar — or will the dollar suddenly and miraculously be set in stone as a unit of value?

    Absolute “economics as a science” fail.

  2. Joe_in_Indiana says:

    What about cows and co2 emissions? Any analysis on that in relation fossil fuel? How do we tax or eliminate them to reduce the greenhouse effect?

    • b_thunder says:

      the shale gas drillers let up to 25% of methane escape into the atmosphere. If nat. gas is 50% better for CO2 than coal, but methane in the atmosphere is about 20 times worse – do the math! We’d be much better off as far as greenhouse effect by burning coal than by “fracking.” “Fracking” probably crates 4-5 times more greenhouse effect than creating the same amount of energy by burning coal.

      p.s. most of the shale *oil* drillers let *all* of the methane to escape, ’cause that’s not what they’re after.

  3. CSF says:

    This simple, market-based approach was also recognized as the optimum solution to the 1970s energy crisis, and Carter’s 1977 legislation included a steadily rising oil tax to curb consumption and encourage development of alternative energy sources. However, Congress – ie, the voters plus the energy and auto lobbies – preferred less-obvious pain: CAFE, subsidies, regulations on utilities, etc. You would think a carbon tax would be an easier sell, since much of the burden would fall on utilities, but clearly the Obama administration has done the math. The president’s executive orders to regulate carbon reveals a lack of confidence that Congress will do anything, let alone tax American voters.

  4. wally says:

    Cows are not releasing sequestered carbon. Coal burners are.

    • rd says:

      There are more cows than nature would normally permit (just like there are more deer today than ever before), so their emissions are higher. Dung beetles would historically have taken the dung and buried as food for their young’uns as well as just general aerobic degradation above ground, but there are way too many cows for that natural process to dominate.

      However, much of the methane also comes from industrial agriculture which tosses the animal waste into great big manure ponds where it ferments anaerobically releasing lots of methane. Some farms harvest this methane and use it as fuel but much is simply off-gassed. Cows and pigs are net methane generators.

  5. bonzo says:

    cows release methane, whose greenhouse effects are 100 times worse than CO2 until the methane degrades, which takes about 100. Though cows aren’t the real danger. It’s a sudden release of methane from warming arctic tundra that we have to worry about.

  6. DeDude says:

    The sad part is that the carbon tax is a simple market based solution to an undeniable problem of pollution and global warming. This should have been the hallmark proposal of the GOP. However, because it was proposed by someone who had become a lightning rod for right wing venom they instead have rejected and vilified the idea.

    When people look back at this period 100 years from now, after having recovered from huge loses (resulting from the lack of a carbon policy), they will shake their heads or fists at their great great-grandparents for fighting stupid triabal battles rather than coming together to institute simple precautions to stop this problem. They will most certainly piss on the grave of Newt Gingrich, the man who turned politics into tribal warfare.

  7. doug says:

    never going to happen. Doesn’t leave any way to shake down constituents for campaign donations…

    • b_thunder says:

      Exactly! Never going to happen b/c Wall St can’t profit from it. Also the tax collected would more or less benefit the broad society.

      It’s so much easier and more profitable to manipulate/corner/front run/skim off the “cap and trade” “exchanges” that GS and JPM already set up one! Think about it: if “someone* was able to jack up oil prices to $147 as the world economy was *cratering*, how much “tax” can “they” continuously extract by buying up all the “cap and trade credits” knowing that the supply will be constantly reduces year after year by the governments? The costs will be, naturally, passed on by the utilities to the consumers. Wall st will “extract” home hundreds of billions with cap and trade, and almost nothing with the simple tax lax that fits on single page and has no loopholes for special interest. A “clean” law like that will never happen while this sort of “representative” democracy exists here.

  8. romerjt says:

    Maybe info like the following will help create a sense of purpose on this subject. Thanks to the improved NOAA site I was able to satisfy my curiosity about how typical or unusual the recent plentiful rains were. One glance are the precipitation graph for the Northeast had an answer. A big change beginning in the 1970s.
    The annual precip in the NE from 1895 – 1970 = 40.1″ . . . . since 1970 = 44.3″ and since 2001 = 46.3″. It’s almost like, well, the climate as changed.

    50 inches of precip exceeds the overall average by 20% and that never happened during the period in the data (1895-2012) until 1972. It’s happened 5 times since 2003. Someone besides me has to noticing this.

    • WallaWalla says:

      Thankfully, there are people who recognize this fact. Climate change adaptation is a really hot topic in progressive areas. The huge costs associated with Hurricanes Irene and Sandy really drove the point home: there must be serious risk management decisions to address the vulnerable public infrastructure.

      Consider that engineers design bridges to withstand historical flow quantities while the data you present clearly shows that this is no longer representative of future conditions. And that’s just one of dozens of policy, planning, and design issues out there.

      It’s not going to be cheap, and it’s nearly impossible to truly quantify the ROI of these sorts of investments. It’s a hard sell in local and state economies dependent on fossil fuels. Some states are literally passing laws saying that climate change is not occurring or that sea-level forecasts cannot be used to determine risk for new building permits. It’s the responsible states that’ll end up subsidizing all of this poor planning.

  9. Joe Friday says:

    Jacoby’s colleague John Reilly told me the price of gasoline might rise by 25 cents a gallon in the first year. Over time, that would increase. By 2050, Reilly figures the carbon tax would add about $1 to the price of every gallon. Across the economy, prices of energy-intensive goods and services would rise. This would encourage people and businesses to be more efficient.

    Which completely ignores how horrendously regressive it would be. Oh sure, they say they’ll include offsetting tax credits, but a large percentage of seniors don’t even file a return anymore, just as one example.

    According to previous scoring by the Joint Committee on Taxation of Congress, a Carbon Tax, a Flat Tax, Fair Tax, National Sales Tax, or VAT tax (which are all deemed to act as a consumption tax) would, even with relative exemptions for food, medical care, drugs, and housing, and calculating ALL rebates or prebates, have the Middle-class paying almost 3 times more of their income, proportionally, as the wealthy, and the Poor paying 5 times more of their income, proportionally, as the wealthy.

    Economic suicide.

    • If you actually read the article, the entire premise is based on a corresponding & offsetting tax cut

      • Joe Friday says:

        I read it.

        And as I and the Joint Committee on Taxation of Congress both noted, any offsets are nowhere near enough to make-up the difference, resulting in even more regressivity.

        Also, as I exampled, reducing income taxes as an offset will not help those that do not file income tax returns. Not to mention, reducing a progressive (what little it remains) income tax is inherently regressive.

        This is non-real-world elitist thinking.

      • Joe Friday says:

        I’m afraid not.

        From your own citation:

        “Targeting revenues toward people who would be likely to bear a disproportionate burden under a carbon tax would provide them with relief, but such a policy would tend not to reduce the total economic costs of the tax. Thus, lawmakers would face a trade-off between the goals of helping those households most hurt by the tax and helping the economy in general.”

        This was the point of the Congressional Joint Committee on Taxation (not quite sure how they would be labeled as “cowards” though) from the reverse angle, that if the Carbon Tax was structured so it does not harm the economy, it would disproportionately harm those most hurt by the tax.

      • DeDude says:

        “any offsets are nowhere near enough to make-up the difference”

        That is a remark that has BS written all over it. You can easily create offsets that more than make up the difference. We have such things as refundable tax-credits.

        Whereas I agree that the carbon tax will hit people with low income more severely, retirees have very little essential driving to do so they are not going to be hit beyond what could be compensated by other mechanisms. Furthermore, a long-term increase of one dollar per gallon is no more than what several times in the past decade have hit people simply from the current “free” markets fluctuations. Given enough time to adjust people can make smart choices with regards to where live and what to drive in such that they personally get affected much less. We cannot let essential changes to energy policy be stopped for fear that some poor person will be adversely affected.

      • Joe Friday says:


        That is a remark that has BS written all over it.

        Except it wasn’t opinion.

        You can easily create offsets that more than make up the difference.

        Of course one CAN, the point the Congressional Joint Committee on Taxation made was that what was being proposed did NOT “more than make up the difference”.

        We have such things as refundable tax-credits.


        But you have to already be filing an income tax return to get a refundable tax-credit. A lot of people stop filing returns after they retire, because their income is tax-exempt.

        Do you have any idea what the median income is of someone on Medicare ?

  10. Frilton Miedman says:

    Taxing energy right now without consumer alternatives would have a similar effect to what oil price manipulation did in 2008 to consumer buying power, RBOB soared, & constricted buying power which spawned a mass of sub-prime defaults – the rest is history.

    The better idea is to simulate alternative energy production & distribution with tax incentives, such as nat gas or electric fueling stations, wind farms…etc.

    Then, once consumers have real choices, tax the crap out of carbon.

    This would have multiple beneficial purposes, alternative energy & infrastructure job creation and cheaper more environmentally friendly fuel, less dependence on foreign fuel sources.

    The problem, the owners of our country (Koch brothers/oil lobby, banking lobby) pay big money to keep the status quo.

    • There are lots of consumer alternatives — they just aren’t cost effective. (A tax changes that)

      • Frilton Miedman says:

        Yes, but offering more affordable options in place of petro’s prior to taxing carbon would benefit consumption in the midst of an age of wage stagnation & consumer deleveraging.

        The consumer needs a running start, first, offer tax/regulatory incentives for alternatives, NG & electric vehicles, infrastructure, etc – then tax carbon once Joe Sixpack see’s that an EV or NG conversion is more cost effective than paying for gas. (NG conversions can be done on most RBOB vehicles for a few $ grand)

        If I knew I could fill my vehicle easily, I’d have done a Nat gas conversion years ago, the fuel savings is immense, there just aren’t any nat gas compressors in place, and EV’s are too expensive.

  11. icantdance says:

    makes perfect sense
    I can see it in the next 25 years,
    after we exhaust all other options ;)

    there will be some interesting calculus and science to set rates.
    methane though more heat trapping has a fraction of the atmospheric lifetime of CO2

  12. rd says:

    Too simple and rational, so it is easy for campaign contributors to target for tweaks to assist them. That is how we make 25 page bills into 2,500 page bills that don’t accomplish anywhere near as much for anybody who is not a tax lawyer or accountant.

  13. Theravadin says:

    I live in one of the few places in the world with a carbon tax (British Columbia). My work is entirely focussed on reducing (preventing is out of the question) serious global warming, and I lobbied hard for the carbon tax. The tax is the only mechanism that precisely targets the problem, and then lets the markets figure it out. It essentially becomes a market mechanism to drive adoption of alternative energy, and much better than subsidies, which always end up becoming politically driven. The other reason that it is the best approach is that the common vision is that emission is the fault of “industry”. But of course it’s really the fault of all of us, and a tax is the only way to hit the dispersed emissions from cars, trucks…

    The tax here in BC is a roll-in, starting at a low rate and ramping up, to give time to adapt. The only problem is that there is always a temptation for the gov’t to back peddle for political reasons… but that is always going to be a risk, I’ll be interested to see if after the next election in Australia they get rid of the tax there.

    From a long term investment point of view, since we can, at best, slow global warming, I recommend being long food and anything related to it… and that’s not a good picture. I’ve worked in places where I got to see the face of serious malnutrition, of starving children… and there is likely to be a lot more of that. For that reason, if for no other, there can be no moral excuses for not acting.

  14. NoKidding says:

    Its good to hear professor Jacoby is in favor of building lots of new nuclear power plants.

  15. a2ricedgti says:

    I would love to see more taxes on fuel in the US…I have a 3.5L gas Hyundai Santa Fe AWD and there is a 4 cylinder gas model available but only gets about 1mpg better combined fuel economy. They sell the same car in Europe with a 2.2L turbo diesel which gets 45 mpg highway (per Euro testing) as compared to 26 mpg highway (per EPA). The diesel motor has less horsepower but more torque so I would speculate the driving experience would only be a little hampered.

    The only fuel economy focused diesel cars sold in the US are VW products…Sure Jeep, Mercedes, BMW occasionally have offerings but they all tilt towards performance beasts which have trouble breaking 25 mpg. More expensive fuel would have consumers clamoring for the manufacturers to bring their more efficient vehicles stateside…

  16. icantdance says:

    absolutely bring those more efficient cars to us…
    class a, b mercedes benz
    VW Phaton 3.0 L V6 TDI

    not brought to us :(

  17. New car & light truck sales were stuck in a 15 million units/yr pace quagmire for seven months ‘cuz gasoline exceeded the Light Vehicle Sales Barrier as defined by the Gas Pump model – - a definitive USA gasoline/GDP ratio which when exceeded impair or even slash activity in the North American auto sector. This invisible line was exceeded in 1980, 1990, 2008, 2011 & 2012 with similar results. The threshold is currently $3.60/gal. When the national price declined below this level in June, it enabled a surge in sales to 16 mu/yr.

    The price model projects improving oil fundamentals (and non-fundamentals) will facilitate a drop in gasoline price to $2.70 by 1Q18 so time is ripe for a carbon tax if deemed appropriate. At this time the model suggest gasoline prices will exceed the LVSB permanently in 2024. Gasoline & diesel engine vehicles are poised to take a huge hit and the sector is ill prepared for a fleet change to electric, fuel cell & natural gas powered alternatives. The auto sector may see a 4 mu/yr plunge in sales pace.

    gasoline price outlook & LVS Barrier: