What Would a Carbon Tax Look Like?

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While the current debate in the U.S. seems to have shifted decisively in favor of the cap-and-trade option - as evidenced by the three main candidates' positions on the issue - it might still be instructive to consider the implications of a carbon tax. A new study published in the latest issue of ES&T; does just that, predicting how electric utilities and consumers would react to a tax on the greenhouse gas.The study, led by Carnegie Mellon University's Jay Apt and Granger Morgan, sought to estimate the likely emissions reductions and consumption cuts a $35/ton tax would incur on utilities and consumers, respectively. They found that it would lead to a 10% reduction in carbon dioxide emissions from utilities in the Northeast and Midwest and to a (roughly) 3% reduction in Texas; the regional fluctuations depend largely on the portfolio of power plants available - hence states like Texas, which rely more on coal-powered plants, would experience larger short-term price increases.

Shifts in consumer demand also varied by region - in part because of different price elasticities of demand (how demand changes as a function of prices) - though Apt and Morgan found that - to a large extent - a $35/t tax would reduce demand and encourage consumers to purchase more energy efficient appliances. Other similar studies had predicted that higher taxes would be necessary to sufficiently shift company investments toward cleaner technologies.

Catherine M. Cooney quotes Alex Farrell, a professor at UC Berkeley, who summed up the carbon tax's impact thusly: "We are reordering the economics of using coal, and the less efficient plants will be used less, with companies relying more on their natural gas plants. That is one-third of the effect. The other two-thirds of the effect are people cutting down on energy use."

Via ::Environmental Science & Technology: What if we suddenly taxed CO2 emissions? (journal)

See also: ::Al Gore Says Carbon Tax Best Choice, ::British Columbia Introduces Smart Carbon Tax