If the U.S. does decide to stay in the Paris agreement, a study conducted by the Massachusetts Institute of Technology (MIT) and the National Renewable Energy Laboratory (NREL) has confirmed a policy proposal that would enable us to meet our 2030 commitments, an MIT press release reported Friday.
Researchers studied various carbon tax proposals and found that they would be an effective means of reducing emissions and would have minimal impacts on the economy.
The joint MIT and NREL study was one of 11 such reports to look at the impact of a carbon tax in Climate Change Economics. The studies all started from the same set of assumptions; while the details of the studies’ conclusions varied, all agreed that a carbon tax could be both effective environmentally and fair economically.
In order to reach their conclusions, researchers used two models: an MIT model of policy impacts on global climate and a NREL model of the U.S. electrical system, which allowed them to assess how proposals would impact that emission-generating sector specifically.
They examined proposals looking at three sets of variables: taxes beginning at $25 or $50 per ton of carbon emitted, yearly tax rate increases of one or five percent, and revenue distribution in the form of equal rebates for every household, individual tax breaks, or corporate tax breaks.
They found that a tax beginning at $50 and increasing by five percent would reduce emissions 63 percent by 2050 and meet both 2030 and 2050 Paris goals. A tax beginning at $25 would also meet the U.S.’s 2030 Paris goal if it was accompanied by a five percent increase.
The researchers also looked at which revenue-uses would be most efficient for the economy overall and which would be fairer in terms of minimizing the tax’s impact on low-income Americans.
Using the revenue to give all taxpayers an equal rebate was the fairest option, but the least economically efficient, whereas using the revenue to reduce capital taxes was the most efficient, but the least fair.
However, researchers also looked at a compromise plan that would reduce corporate taxes and offer a rebate to the lowest-income families, a plan they said would have a minimal impact on the economy. Even the most economically-inefficient options would only reduce growth by four-tenths of a percent.
Study author and MIT Sloan School of Management senior lecturer John Reilly noted that the study’s economic analysis was slightly out-of-date, since it was conducted before the passing of President Donald Trump’s tax bill.
“It is important to realize that this study was completed before the tax reform that took effect in January that slashed corporate income tax rates. Given that these tax rates have now been cut, and that those cuts will contribute to a growing deficit, we might better consider the revenue as a contribution to closing the deficit,” Reilly said in the MIT release.