Full Title: The Case Against a Carbon Tax
Author(s): Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger
Publisher(s): Cato Institute
Publication Date: September 1, 2015
Full Text: Download Resource
Description (excerpt):
A vigorous campaign aimed at American policymakers and the general public has tried to create the perception that a federal carbon tax (or similar type of “carbon price”) is a crucial element in the urgently needed response to climate change. Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue-neutral carbon tax swap could even deliver a “double dividend” — meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as the U.N. and Obama Administration reports — reveal that the case for a U.S. carbon tax is weaker than the public has been told.
In the policy debate over carbon taxes, a key concept is the “social cost of carbon,” which is defined as the (present value of) future damages caused by emitting an additional ton of carbon dioxide. Estimates of the SCC are already being used to evaluate federal regulations, and will serve as the basis for any U.S. carbon tax. Yet the computer simulations used to generate SCC estimates are largely arbitrary, with plausible adjustments in parameters — such as the discount rate — causing the estimate to shift by at least an order of magnitude. Indeed, MIT economist Robert Pindyck considers the whole process so fraught with unwarranted precision that he has called such computer simulations “close to useless” for guiding policy.