Anti-fossil-fuel activists have long advocated federal and state governments should impose carbon taxes. Such a tax, they argue, would correct a “market failure” by placing a price on carbon dioxide (CO2) emissions that would reflect the external costs imposed on the environment by dangerously modifying Earth’s climate. With a price mechanism in place, they say, market actors would reduce CO2 emissions and invest in cleaner alternatives without the need for command-and-control regulation.
Many scientists, economists, and policy analysts disagree, however, noting a carbon tax would raise energy costs, destroy jobs, and harm the economy. Many of these experts also reject the notion that CO2 is a pollutant, pointing out that CO2 is a natural compound crucial to a healthy ecosystem as well as human life.
On July 1, 2012, Australia implemented a carbon tax at A$24.14 (U.S. $22) per ton of CO2, similar to what has been proposed in the United States, thereby establishing a real-word test of the carbon tax’s effects.
Economist Robert Murphy, Ph.D., of the Institute for Energy Research, wrote about those effects after examining a paper by Alex Robson, Ph.D., whose work was published in the February 2014 edition of the peer-reviewed academic journal Economic Affairs. Murphy writes, “In the year after Australia’s carbon tax was introduced, household electricity prices rose 15%, including the biggest quarterly increase on record.” In addition, Murphy observed, Australia’s unemployment rose sharply after the carbon tax was introduced, despite being relatively stable previously.
The carbon tax had serious, negative consequences for Australians, and a September 2013 election brought in a new prime minister and several new members of Parliament who have made abolition of the carbon tax a near-certainty.
Australia’s real-world carbon tax experiment demonstrated the hypothetical benefits claimed by U.S. carbon tax enthusiasts did not pan out. The experiment also provided additional proof that energy use is a crucial input to a healthy economy and governments do very noticeable harm by overtaxing or over-regulating it. With technological advancements making great strides in environmental improvement worldwide, legislators should allow energy markets to operate freely to lower costs and facilitate innovation.
The following documents provide additional information about carbon taxes in Australia and as proposed for the United States.
Ten Principles of Energy Policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to help deal with ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography.
Australia’s Carbon Tax: An Economic Evaluation
In a February 2014 paper for Economic Affairs, Alex Robson, Ph.D., evaluates Australia’s carbon tax—implemented on July 1, 2012—and explains why it led to such a dramatic change in government in the 2013 elections, making its repeal a near-certainty.
Australia’s Carbon Tax: Lessons for the United States
Economist Robert Murphy, Ph.D., examines the peer-reviewed economic analysis performed by Dr. Alex Robson in an online article for the Institute for Energy Research. The Australian carbon tax failed to meet any of its goals, Murphy writes, in fact leading to the opposite of what its supporters promised, including rising unemployment, higher energy costs, and an increase in CO2 emissions.
Dissecting the Carbon Tax
Kenneth Greene, a resident scholar at the American Enterprise Institute, recaps how he was first deceived by the supposed economic benefits of carbon taxes and how his views have evolved, given the dubious track record of other eco-taxes being raided for general spending.
Kansas Legislature Was Wise to Reject Carbon Tax
Writing in the Heartlander digital magazine, Cato Institute Senior Fellow Patrick Michaels discusses the defeat of a 2008 Kansas state bill to impose a carbon tax. If the bill’s costly provisions were applied to every country that signed the 1997 Kyoto Protocol, it would prevent just 0.27 º F of warming per century, an amount too small to measure, Michaels reports.
Massachusetts Carbon Tax Proposals Just Won’t Cut It
Tax Foundation economist Lyman Stone examines Massachusetts’s carbon tax proposals and finds they would further distort the state’s tax code while proving useless as an environmental policy because of the mobility of carbon-intensive industries such as manufacturing.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at [email protected] or 312/377-4000.