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CBO Releases Important Carbon Tax Report

Press Release

Location: Washington, DC

Today the Congressional Budget Office (CBO) released an analysis of the policy implications of enactment of a carbon tax. The CBO report makes a compelling case for inclusion of a carbon tax in any legislation to reduce the deficit or reform the tax code.

"Climate change is among the biggest threats facing the world today. As a global leader, the United States has a responsibility to reduce our carbon emissions. Finding an effective way to price carbon is necessary step forward in our climate change efforts," said Sen. Ben Cardin.

"Carbon fee legislation could stop big polluters from unloading the costs of their pollution on the American public, and correct a flawed energy market," said Sen. Sheldon Whitehouse. "This report shows that a carbon fee also provides economic benefits to American families while significantly reducing carbon pollution. I hope it will inspire more of our colleagues in Congress to consider carbon fee legislation

"CBO's report shows that a carbon tax is a win-win policy," said Rep. Henry A. Waxman. "A properly designed carbon tax can help prevent potentially catastrophic changes to the climate and at the same time reduce the deficit or pay for tax reform."

"In order to effectively reform the tax code and reduce the deficit, we need not only to simplify, but to institute a broad-based fee such as a carbon tax," said Rep. Earl Blumenauer. "The CBO's report from today shows that a carbon tax could raise more than a trillion dollars over the next decade in addition to helping us deal with carbon pollution. We must carefully manage how the revenue is spent to ensure that it helps the economy grow and does not disproportionately affect low-income individuals."

"This report points out that a carbon fee could reduce the pollution that causes climate change and help to reduce our federal budget deficit," said Sen. Brian Schatz. "Earlier this month, the Mauna Loa Observatory reported that carbon in the atmosphere exceeded 400 parts per million for the first time in human history, which underscores the need to act now."

According to CBO, "the ultimate economic effects of a carbon tax would depend on how the revenues from the tax were used" (p. 5). The CBO report identifies two uses of the revenue that could "substantially offset the total economic costs resulting from the tax" (p. 2). They are using the revenues to reduce the debt and using the revenues to reduce marginal tax rates. CBO says that some analyses have even concluded that "a tax swap could lead to a net increase in output" (p. 11).

The CBO report addresses the impact of a carbon tax on low-income households and finds that these impacts could be addressed at modest cost. According to CBO, "offsetting the costs for households in the lowest one-fifth of the income distribution would take roughly 12 percent" of the revenue raised by a carbon tax (p. 13).

The final section of the CBO report makes a strong case for near-term action to reduce carbon emissions. CBO's report states that delaying action to reduce carbon pollution "would increase the expected damage from climate change by increasing the risk of very costly, potentially even catastrophic, outcomes" (p. 19). The report defines a "catastrophic loss" as "a 25 percent decline in global output" (p. 16).

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