Should We Swap Energy Subsidies for a Carbon Tax?
The Surprising Reality
Over the past few months there has been increased talk in Washington of taxing carbon emissions. Rep. Jim McDermott (D-WA) has introduced legislation, while former Rep. Bob Inglis has proposed replacing today's subsidies with a carbon tax.
The view among most economists is that a tax would be more efficient at reducing emissions than subsidizing clean energy. Over the years, Harvard economist Greg Mankiw, an advisor to George W. Bush and now Mitt Romney, along with President Ronald Reagan's economic advisers, Martin Feldstein and Arthur Laffer, have all endorsed carbon taxes, along with environmental economists, like Harvard's Robert Stavins.
Breakthrough Institute is on the record supporting a low carbon tax (here and here), subsidy reform, and increased federal spending on energy innovation. We were thus interested in calculating how much of a price incentive a carbon tax would offer for the deployment of solar, wind, nuclear, and natural gas, the leading low-carbon technologies.
What we found surprised us. A $20 per ton carbon tax would offer just one-half to one-fifth the incentive of today's zero carbon subsidies — but at nearly 10 times the cost. (Our full analysis can be read here, and an Energy and Environment story on the study follows below.)