Full Title: The Carbon Tax: Analysis of Six Potential Scenarios
Author(s): Capital Alpha Partners, LLC (Capital Alpha)
Publisher(s): Capital Alpha Partners, LLC
Publication Date: October 1, 2018
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Description (excerpt):
We present a macroeconomic analysis of current representative carbon tax proposals considered
as if they were actual legislative proposals before Congress and scored using scoring conventions
similar to those used by the Joint Committee on Taxation (JCT), the Congressional Budget Office
(CBO) and the U.S. Treasury Department Office of Tax Analysis (Treasury).
We model six carbon tax scenarios. Two are carbon taxes that begin at a set rate and increase
annually. These taxes begin at $40 and $49 dollars per metric ton of CO2 and increase annually by
2%. Four are carbon taxes that phase in over time to a terminal value. These are taxes with terminal
values of $36, $72, $108, and $144 per ton. All are in constant 2015 dollars.
A special focus of our study is the role of a carbon tax as a revenue raiser in pro-growth tax reform.
There have been many suggestions that a “tax swap” of growth-oriented tax cuts financed by a
carbon tax could produce incremental economic growth. We find that this premise would be
difficult to achieve using standard scoring conventions. We also examine the possibility of a taxfor-regulatory
swap in which a carbon tax would replace all existing regulation and still allow the
United States to meet its obligations under the Paris Agreement. We find this premise difficult to
achieve as well. A carbon tax would reduce emissions but could still only achieve Paris Agreement
obligations as a part of a comprehensive carbon mitigation plan. This is in agreement with World
Bank and International Energy Agency (IEA) conclusions and is consistent with the Treasury’s
own modeling