The Time for a Carbon Tax is Now

Abstract

The U.S. needs to get its finances under control without resorting to the usual fixes of raising taxes and/or cutting spending, which would stymie recovery. The case for a carbon tax is a compelling one, given our current macroeconomic quandary and our apparent inability to deal with climate change. Each of these factors alone can make the case persuasively. When we take them together, the tax becomes even more convincing as a solution to some seemingly insurmountable problems. A carbon tax has big long-term revenue potential and only small, short-term drawbacks. A carbon tax avoids the pricing pitfalls of cap-and-trade and moves towards gradually replacing our energy infrastructure over time. Paradoxically, a carbon tax would be a boon for natural gas.