By Noah Kaufman, John Larsen, Shashank Mohan, Whitney Herndon, Peter Masters, John Diamond and George Zodrow

Executive Summary

In July 2018 Representative Carlos Curbelo proposed legislation that would put a price on US carbon dioxide emissions (“Curbelo proposal”). A carbon price is widely viewed as a necessary part of a cost-effective national strategy to address the risks of climate change. This proposal is especially notable because Republicans, who currently control the US Senate, House of Representatives, and presidency, have not proposed national carbon pricing legislation in nearly a decade.

This paper, part of the Carbon Tax Research Initiative of the Columbia University SIPA Center for Global Energy Policy (CGEP), is a collaboration between scholars at CGEP, Rhodium Group, and the Baker Institute for Public Policy at Rice University. It presents the results of an independent analysis of the impacts on emissions, energy markets, revenues and the economy of the Curbelo proposal.

The Curbelo proposal would impose a tax on carbon dioxide emissions that starts at $24/ton of CO₂e in 2020, and it repeals the federal excise taxes on gasoline and diesel fuels. Analysis in RHG-NEMS provides estimates of the effects of these policy changes on the US energy system and greenhouse gases. The proposal would generate significant new government revenues that would be used to fund the US transportation system and provide dividends to low-income families, among other uses. Analysis using the Diamond-Zodrow dynamic computable general equilibrium model provides estimates of the effects of the price changes and revenue uses on the US economy and the welfare of low-income households.

The Curbelo proposal leads to the following economy-wide net greenhouse gas emissions compared to 2005 levels:

• 27–32 percent reductions by 2025

• 30–40 percent reductions by 2030

More than two-thirds of these emission reductions occur in the electric power sector. Such economy-wide emission reductions would outpace the United States’ nationally determined contribution to the Paris Agreement of 26–28 percent reductions by 2025. By contrast, under current policy, economy-wide net GHG emissions would fall to 18–22 percent below 2005 levels in 2025.

The Curbelo proposal has the following implications for the US energy market and economic outcomes, compared to a scenario in which current policies remain in place through 2030:

• Annual federal government revenues increase by $57 billion–$72 billion in 2020 and $63 billion–$106 billion in 2030 (all monetary results are in 2016 dollars).
• Natural gas production is 2–3 percent higher in 2020 and 5–8 percent lower in 2030.
• Crude oil production is not significantly affected, and gasoline and diesel prices increase by less than 10 cents per gallon.
• National average electricity prices are 8 percent higher in 2020 and 5–10 percent higher in 2030.
• Per capita energy expenditures will increase by about $275 in 2020 and by $186–$278 in 2030, in all years remaining more than $1,000 lower than the recent historical peak in 2008.
• National macroeconomic outcomes decline modestly, including reductions in annual gross domestic product of between 0.1 and 0.2 percent in the 2020s.
• The effects on gross domestic product do not increase over time; they remain at about 0.2 percent.
• The lowest-income households benefit from the Curbelo proposal; the 10 percent of carbon tax revenues used for transfers/ dividends are more than sufficient to offset the higher energy prices.
• Younger workers, those who have not yet entered the workforce, and retirees fare better than middle-aged workers.

Read the full paper at CGEP.