The Pros and Cons of Taxing Climate Change

A climate change economist discusses effectiveness of a carbon tax

Don Fullerton, the Nannerl Keohane Distinguished Visiting Professor for Spring 2015

Solar panels, wind turbines, nuclear power plants and electric cars are no longer enough to mitigate the risks posed by human-driven climate change, according to University of Illinois economist Don Fullerton.

 “All these technologies together will make a difference,” Fullerton said. “But the lowest cost per ton of greenhouse gas emission [reduction] will come from a carbon price.”

Fullerton, who this semester is the Nannerl Keohane Distinguished Visiting Professor at Duke and UNC-Chapel Hill, discussed the pros and cons of a carbon tax at the Sanford School Monday night. The lecture was co-sponsored by Duke and UNC as part of an initiative to promote academic collaboration between both institutions. The professorship was founded in 2004 and funded by Julian and Josie Robertson and the William R. Kenan, Jr. Charitable Trust.

Public policy professor William Pizer, who introduced Fullerton on Monday, said Fullerton’s work has influenced policy makers’ understanding of man-made climate change.

“Working on environmental economics was not the hip thing to do in the 1990s,” Pizer said. “But it was Don’s work on the economic [implications of climate change] that helped bring these discussions into the mainstream.”

Charging Americans families and companies for each ton of carbon they put in the atmosphere --determined primarily by electricity usage, since capturing tailpipe emissions is too difficult and costly -- is the best way to encourage better habits, according to Fullerton. A carbon tax would also push technology companies to develop alternative energy sources and carbon-neutral devices.

But Fullerton was quick to add that introducing another tax would be very difficult, especially in the current Republican-controlled Congress.

“Politicians prefer regulations and subsidies,” Fullerton said. “And even though a carbon tax is the cheapest way to abate each ton of greenhouse gases, politicians do not want [utility and fuel] prices to go up.”

A fitting compromise might be for the Environmental Protection Agency to assign each state a target for carbon reduction but leave the method of producing fewer greenhouse gases up to each state. And though a carbon tax might disproportionately impact low-income families, who would have to spend a greater percentage of their income on the tax, Fullerton said the additional revenue raised by this tax could be used to reduce income tax rates. For example, North Carolina could raise $1.3 billion per year from the carbon tax and use those revenues to reduce the income tax by 10 percent, he said.

But small lifestyle changes will not be enough to reduce the negative environmental impacts of carbon emissions, Fullerton emphasized, adding that government has to legislate carbon neutrality.

“Even if we stopped emitting carbon altogether, we are still going to observe changes in sea level and global weather patterns as a result of 200 years of [human-generated] emissions,” Fullerton said. “Our private actions can reduce [the impact of carbon emissions], but our elected officials need to make carbon reduction a policy.”

For more information on the Nannerl Keohane Distinguished Visiting Professorship, click here.