Carbon Fees

I could probably fill a bookcase with what’s been written about carbon fees, aka carbon taxes. I’ve written and blogged about a carbon tax before: ( ). A new discussion of carbon fees seems particularly germane at this moment. William Nordhaus, a Yale professor, has just won the Nobel Prize in Economics for his work on carbon pricing. The Intergovernmental Panel on Climate Change (IPCC) has just reported on the precocious impacts of the ongoing changes in global climate. And as a result of the recent tax cuts, the United States seems destined to develop huge Federal budget deficits that will raise interest rates and stymie the economic growth so desired by the President.

Specifically, a fee could be set and collected for every pound of carbon dioxide emitted to the atmosphere by human activities. The fee could be higher for carbon derived from fossil fuels, but at least some tax should be collected for biogenic fuels as well, since they emit CO2 with the same impact as that from fossil fuels.

A carbon fee may seem like a retrogressive tax that impacts folks at lower income levels. That may be true for gasoline use in personal transport, but consider the fees that would be captured by the use of big cars, airplanes, and yachts by the upper crust. Overall, a carbon fee would reflect the resource use and thus climate impact equitably across our society.  The impact at lower economic levels can be mitigated by a carbon dividend each year to reduce or eliminate traditional taxes on wages and income by the Internal Revenue Service (IRS) and offer a net income for those who do not emit much carbon. We could shift our economy from one that taxes productivity to one that taxes excessive resource use. A carbon dividend could essentially negate the tax on lower income levels.

Carbon fees would penalize fuels that are less efficient (e.g., coal) over those that are more efficient, and it would reward fuels that emit no carbon dioxide (e.g., solar and wind power). Coupled to rapidly improving battery capability, the latter are expanding into non-traditional markets (e.g., electric cars and heating). Even in Maine, we heat our house with a combination of passive and active solar photovoltaics, and have no net annual draw of electricity from the grid. Importantly, a carbon fee program would preserve the personal choice of how we live our lives—big car or little car, lights on or lights off, heat at 65 F or 72F.

At least a partial fee collected on biogenic energy would recognize that substituting corn-ethanol for gasoline and biomass (aka firewood) for coal emits carbon dioxide to the atmosphere. A carbon fee could be set at low levels for biogenic fuels that emit CO2 that is recaptured from the atmosphere rather quickly and high (perhaps higher than for coal) for the perverse suggestion that we can burn trees for electricity to stave off climate change.

We know how to collect carbon fees.   We do it now for every gallon of gasoline you buy. Electric power plants know the tonnage of coal that they burn each year. We can adjust the fees up or down quickly to reflect their effect on total CO2 emissions and economic conditions. By all accounts carbon fees are less easily manipulated than “cap-and-trade” systems proposed to reduce CO2 emissions. The effect of a carbon tax would be transparent and immediate.  In the past, a carbon fee has seen bipartisan support, as well as support from big corporations, such as Exxon-Mobil.

The seas are rising, hurricanes are blowing, fires are burning, and seawater acidifying. With the costs of climate change estimated at 1.2% of Gross Domestic Product (=$250 billion) per year for each 1o C of warming, can we afford to wait?

Seven documented reasons why YOU should care about climate change



Hsiang, S. and 11 others. 2017. Estimating economic damage from climate change in the United States. Science 356: 1362-1369.

Nordhaus, W. 2013. The Climate Casino. Yale University Press, New Haven.

Oreskes, N. 2011. Metaphors of warfare and the lessons of history: time to revisit a carbon tax? Climatic Change 104: 223-230.

Schlesinger, W.H. 2006. Carbon trading. Science 314: 1217   doi: 10.1126/science.1137177

3 thoughts on “Carbon Fees

  1. I’m no economist. My degrees come from other disciplines, but it seems to me that instead of kvetching about who or what is responsible for the rising sea levels that have been advancing since the end of the Ice Age, that we might better spend our dollars and time simply ‘moving uphill’. The Coastal Zone Management Act (passed 40 years ago or more) had as a purpose that we would not build anymore in the Coastal Zones. But of course after every hurricane we build on the same barrier islands up and down the East Coast. Long Island, New York is a barrier island, including the newly gentrified Brooklyn. Florida should have been designated a no build area due to its low elevation. Perhaps the increase in human density and the channeling of rivers which removed the flood plains which provided overflow areas, has increased the damage. It is my understanding that during the last ice age that the east coast shore line was about 500 or more feet below what it is today. Without a comprehensive and interdisciplinary policy addressing the geography of rising sea levels, we have simply accepted another kind of denial. What does the folk song say, “When will we ever learn?”

    1. Yes, we do need to invest time developing policies to “move uphill.” But we still need a carbon tax — or some regulatory/economic instrument — to reduce GHG emissions immediately. It’ll do little good to “move uphill” if (when) the climate makes large portions of the range uninhabitable and unproductive. We need everyone, and every economic sector, finding ways to reduce energy use and GHG emissions and increase C sequestration.

  2. Great idea and I’ll bet it would work. But the question is how to implement it. I doubt you could get it through the present Federal Administration. It may take a tragedy such as the Triangle Shirtwaist Factory Fire or a Spanish Flu like epidemic to change the culture and get the Fed moving . Hopefully you and your colleagues will continue to refine and market the concept and have it in place if we start see, for example, a major hurricane related die off in the Southeast.

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