Taxing carbon emissions would hurt the economy.
It would hurt workers and households everywhere, but it would especially hurt the energy and energy-intensive manufacturing industries.
Those are some results of "Economic Outcomes of a U.S. Carbon Tax," a study released Feb. 26 by the National Association of Manufacturers.
The study, which analyzed the costs of a carbon tax but did not look at the benefits or compare alternatives, was conducted for NAM by NERA Economic Consulting.
"There's clearly a disconnect in Washington today," said NAM President and CEO Jay Timmons in a conference call releasing the report to the media. "We hear members of both parties saying they want a thriving manufacturing sector but, to date, policy prescriptions have not matched their rhetoric."
This study, which Timmons said is aimed at educating policymakers, analyzed two cases.
The "$20/ton case" is modeled loosely on a proposal by Sens. Barbara Boxer, D-Calif., and Bernie Sanders, I-Vt. The study analyzed a tax of $20/ton of carbon dioxide emitted starting in 2013 and increases that by 4 percent per year, hitting $96/ton in 2053.
The "80 percent reduction case" was added in response to the fact that the $20/ton case reduced carbon emissions by only 30 percent by 2053 — far below the 80 percent reductions by 2050 that have been widely discussed as national and international goals. This case starts at a tax of $20/ton and increases fast enough to reach that 80 percent reduction, topping out at a cap of $1,000/ton.
Compared with baseline economic measures, the analysis found that the $20/ton case would reduce gross domestic product by 0.4 percent in 2013 and 0.6 percent in 2053, or about $230 billion in 2053 in 2012 dollars. The 80 percent reduction case would reduce GDP by 3.6 percent, or $1.4 trillion, in 2053.
Wage rates and employment rates would drop similarly, leading to reductions in average household consumption under the $20/ton case of $20 in 2013 and $310 in 2053, in present value terms, and under the 80 percent reduction case of $920 in 2053.
Energy prices would be affected dramatically — the price of coal more than doubling in the first year and the price of natural gas rising by 40 percent, for example — with corresponding increases in costs and reductions in output across the economy. The effect is most notable in energy-intensive manufacturing, where output is reduced by 2.7 percent by 2053 in the lower-tax case and by 15 percent in the higher-tax case.
A state-specific summary found, for West Virginia, higher household energy bills, a loss of 30,000 to 40,000 jobs in 2013, and, among industrial impacts, losses in particular to the coal industry of 50 to 60 percent of output by 2023.
The computer model used for the analysis is a complex economic model that takes into account the detailed interworkings of many sectors of the economy, according to NERA Senior Vice President and Environmental Group co-leader Anne Smith.
Of possible policy measures for reducing carbon emissions, a carbon tax is widely agreed to be the most efficient, said Eric Bowen, an economist with West Virginia University's Bureau of Business and Economic Research — and it's true that it would hit some sectors more than others.
"There definitely would be impacts on those energy-intensive industries and you're going to have impacts on coal, oil, any of the fossil fuels. There's no getting around that," Bowen said.
He noted that this is a cost analysis and not a cost-benefit analysis that looks at broader context.
"The point of a carbon tax is that it actually corrects for this market failure, which is that we're not pricing in the cost to society for this carbon that we're emitting into the atmosphere," he said. "So you have to also look at what the benefits of this tax would be — whether the effects on those industries would outweigh the costs of the potential problems in the economy with climate change."
One example of an alternative policy, the costs of inaction on climate-warming emissions could be in the hundreds of billions of dollars nationwide in this century, according to a 2009 report from the Union of Concerned Scientists, with broader impacts in areas including public health and infrastructure.
The National Association of Manufacturers' policy statement on climate change reads, "We know the U.S. cannot solve the climate change issue alone. The establishment of federal climate change policies to reduce greenhouse gas emissions, whether legislative or regulatory, must be done in a thoughtful, deliberative and transparent process that ensures a competitive level playing field for U.S. companies in the global marketplace. "
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