Carbon Tax: A Free Market Solution to Climate Change?

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Proponents of a U.S. carbon tax have been coming out of the woodworks for years, but even more recently, shouting about the need to reduce carbon dioxide emissions primarily from the use of fossil fuels to save the environment. But is it worth it? According to a recently published paper by the Texas Public Policy Foundation, the answer is no.

A carbon tax is often called a free-market approach to reducing the negative externalities, or social costs, of CO2 emissions while causing consumers little harm. In reality, a carbon tax would drastically increase the price of every good or service that requires the use of energy…so, all of them.

A free market is, by definition, a marketplace where consumers and suppliers mutually benefit through voluntarily exchange for goods or services. The proposed carbon tax is most definitely not a free market tax because a tax of any kind interferes in the market.

The Australian carbon tax, one of the most commonly cited examples of a “success,” caused the largest-ever quarterly increase in consumer energy prices. The initial cost was $23 per ton of CO2 equivalent emitted into the air and was increased to $24.15 per ton a year later. The program was so unpopular that the program was formerly ended in July 2014, just two years after it was implemented.

Estimates for the U.S. of a tax of $49 per ton of CO2 emissions indicate there could be an increase of $21 per barrel of oil and could increase the price of natural gas by $2.60/mcf, nearly doubling the current price. There’s no doubt about it: price increases that massive will cause consumer electricity prices and gasoline prices to spike, harming Americans, especially those least able to afford it, in the process.

Additionally, there’s little conclusive evidence to prove that carbon dioxide emissions cause environmental harm. Dr. John Christy, a leading atmospheric scientist, says that our current environmental models are too inaccurate to provide any reliable data. For example, Figure 1 shows 102 environmental model runs in 32 groups of global temperatures compared to the actual observed data.

All one has to do is take a cursory glance at this comparison to call the scientific community’s “consensus” into question, with the facts showing the estimated average increases were more than 2.5 higher than actual temperatures. In contrast, there is significant empirical data showing carbon dioxide emissions are associated with improved quality of life.

Figure 2 shows the massive increase in GDP per capita, population, and life expectancy that is associated with increased CO2 emissions.

Other research finds that there is a 95 percent correlation between increasing use of fossil fuels and rising economic growth over time. There is also an 83 percent correlation between rising CO2 emission levels and average life expectancy at birth.

In summary, the proposed “free-market” carbon tax is, by definition, not a free market solution. The tax would unduly burden American consumers with increased electricity and gas prices.

One of the most prominent examples of an implemented carbon tax was so unpopular that it was scrapped after just two years.

​Finally, perhaps most importantly, there is little to no evidence that there is a need to reduce carbon emissions in this country. For all of these reasons, and many more, the proposed carbon tax should be whole-heartedly rejected.