Carbon Tax Could Raise $1.5 Trillion as Federal Deficit Looms, MIT Report Says

By Ari Natter  

WASHINGTON, D.C.--A tax on carbon dioxide emissions could raise $1.5 trillion, according to a Massachusetts Institute of Technology report that said the revenue could be used to stave off budget cuts as Congress seeks to reduce a looming federal deficit.

The report, Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?, released Aug. 27, examined the effects of a carbon tax starting at $20 per ton in 2013 and rising 4 percent annually.

According to the report, such a tax would cut carbon dioxide emissions 20 percent below 2006 levels by 2050, encourage the use of renewables, and reduce oil imports.

“Whether we cut taxes or maintain spending for social programs, the economy will be better off with the carbon tax than if we have to keep other taxes high or cut programs to [rein] in the deficit,” John Reilly, an author of the study and the co-director of MIT's Joint Program on the Science and Policy of Global Change, said in a statement.

Alternative to Tax Increases, Defense Cuts

The report, which comes as Congress seeks ways to reduce the federal deficit, says the revenue provided through a carbon tax could provide an alternative to tax increases and cuts to defense spending and social programs, and could allow an extension of the Bush tax cuts that are due to expire at the end of 2012.

However, the report's authors warn that “while in principle it is possible to get very positive results from a carbon tax, in practice” it depends on the specific proposal.

One, the Managed Carbon Price Act of 2012 (H.R. 6338), introduced earlier in August by Rep. Jim McDermott (D-Wash.), would place a carbon tax on fossil fuels but would set aside most of the revenues to be refunded to consumers, with the remainder being used for deficit reduction (149 WCCR, 8/2/12).

Still, many analysts remain skeptical that Congress has the appetite to enact carbon tax legislation anytime soon.

Climate legislation that would have required mandatory cuts in greenhouse gas emissions passed the House in 2009, but the Senate version collapsed in 2010.