Climate Change Study Promotes Progressive Strategy To Reduce CO2 Emissions While Reducing Payroll Taxes

Washington, DC - The U.S. can reduce CO2 emissions and create a path to limit their atmospheric concentrations to levels considered safe for the global climate, by introducing carbon-based taxes and offsetting their costs for most households, according to a study authored by Dr. Robert Shapiro, former Under Secretary of Commerce for Economic Affairs, along with Drs. Nam Pham and Arun Malik. Using the National Energy Modeling System (NEMS), the model also used by the Department of Energy, the study finds that these results can be achieved by applying a charge of up to $50 per-ton of CO2 and returning 90 percent of the revenues in tax relief for the people and businesses using the energy and paying the tax.

The findings of the study "Addressing Climate Change without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief," were released today at a forum hosted by The Georgetown University Center for Business and Public Policy.

"As America seeks to lower carbon emissions to address climate change, it is critical to identify the best way to lower carbon emissions while maintaining a strong economy," Shapiro said. "Climate change is a critical issue that warrants a serious solution. Implementing the wrong policy could ultimately be as damaging as doing nothing. Our analysis shows that we can achieve both goals."

"Reducing emissions to the levels that scientists believe are necessary to preserve the climate will have costs, but the proposal set forth by Dr. Shapiro minimizes the effects and should entail only modest costs to the economy," said Dr. Elaine Kamarck, who moderated the panel discussion. Dr. Kamarck is lecturer at the John F. Kennedy School of Government at Harvard University and former senior domestic advisor to Vice President Albert Gore. "We have an historic opportunity to address climate change and reduce emissions while offsetting the direct costs, encouraging the kinds of innovations that are the great strength of our economy, and supporting efforts by people and businesses to make the adjustments required for the planet."

The analysis found that a carbon-based tax that would reduce U.S. carbon dioxide emissions consistent with a long-term path to safe levels would entail a charge rising from $14 per-ton of CO2 in 2010 to $50 per-ton in 2030 (2005 dollars). The charge would create direct incentives for businesses and households to prefer less carbon-intensive fuels, use less energy-intensive technologies and products, and conduct their businesses and lives in other ways that use less energy. The simulations in the study show that the proposed tax would generate about $4T in revenues over 20 years, of which nearly $3.6T would be returned to households in payroll tax cuts or their equivalent. These recycled revenues would be sufficient to reduce, on average, the annual payroll tax rate for workers and businesses by a total of two percentage points. The remaining 10 percent of the revenues would be used to support both climate-related research and development and the deployment of climate-friendly technologies, consistent with the recommendations of the Stern Commission in the United Kingdom.

The study found that by 2030, this strategy would drive down U.S. CO2 emissions by about 30 percent. The model further showed that by recycling the revenues, American GDP in 2030 would be $22.3T (2005 dollars), compared to $22.5T if no actions on climate change are taken. The study also found that the strategy would protect the incomes of average Americans: Under the program, U.S. households would earn an average of $88,330 per-year over the 20-year period, compared to $89,761 under current trends and no action on climate change.

The study was released by the U.S. Climate Task Force, a new project of the economic advisory firm Sonecon, LLC which seeks to bring together leaders from business, the environmental community, academia and public life to examine the range of climate change policy options.

SOURCE: National Energy Modeling System