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Cut to Invest: Institute a Modest Carbon Tax to Reduce Carbon Emissions, Finance Clean Energy Technology Development, Cut Taxes, and Reduce the Deficit

The nation should institute a modest carbon tax in order to help clean up the economy and stabilize the nation’s finances. Specifically, Congress and the president should move to design and implement a carbon fee system that would:

  • Establish a modest carbon levy of roughly $20 per ton of carbon dioxide emissions. According to the MIT Joint Program on the Science and Policy of Global Change, a carbon tax starting at $20 per ton and rising at 4 percent annually per year in real terms would raise on average $150 billion a year over a 10-year period while reducing carbon dioxide emissions 14 percent below 2006 levels by 2020 and 20 percent below 2006 levels by 2050.

  • Set aside at least the first $30 billion of revenue annually for clean energy- and energy efficiency-related RD&D and technology deployment. This reflects the need to complement pricing strategies with direct investments in technology “push” measures to ensure that decarbonization proceeds rapidly and adequately. Along these lines, at least the first $30 billion of carbon tax revenue each year should be deposited into an independently managed fund for supporting top-quality energy-system RD&D activity. This figure reflects a Metropolitan Policy Program analysis of the amount the federal government needs to invest in clean energy technology development (that industry won’t do on its own) simply to bring the energy industry’s RD&D intensity in line with comparable technology industries such as health or IT.

  • Allocate the rest of the revenue (approximately $120 billion a year) to tax cuts and deficit reduction as well as rebates to affected low-income households, as determined by Congress and the president.

SERIES: Remaking Federalism | Renewing the Economy | Number 7