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Economists: It's Time for a Carbon Tax That Pays Dividends

Michael Rainey
Dozens of prominent economists with extensive experience in government service signed a statement in Thursday’s Wall Street Journal calling for a carbon tax. “Global climate change is a serious problem calling for immediate national action,” the economists said, before defining five broad principles to guide a bipartisan effort to create a new tax on carbon:   * A carbon tax is the most cost-effective way to harness “the invisible hand of the marketplace to steer economic actors towards a low-carbon future.” * The proposed carbon tax should rise every year to encourage large-scale development. * The price signal of a steadily rising tax should replace “cumbersome regulations” on carbon. * The carbon tax should include a border adjustment to protect U.S. companies and “create an incentive for other nations to adopt similar carbon pricing.” * To enhance the “political viability” of such a tax, the revenues collected “should be returned directly to U.S. citizens through equal lump-sum rebates.” The Journal’s Timothy Puko said that the principles are backed by a group called the Climate Leadership Council, which has proposed an initial tax on U.S. businesses of $40 per ton of carbon emissions. The tax would produce about $200 billion per year, which translates to about $2,000 for a family of four. One of the signatories, former Fed chair Janet Yellen, said that a “carbon tax is very popular among economists but not very popular among people. Getting a proposal that has some political viability so we can make some progress, I think that’s essential.” In addition to Yellen, the signatories include former Fed chairs Alan Greenspan, Paul Volcker and Ben Bernanke; former White House advisors N. Gregory Mankiw, Christina Romer, Laura Tyson, Martin Feldstein, Jason Furman and Austan Goolsbee; and Nobel Prize recipients George Akerlof, Angus Deaton, Peter Diamond, Amartya Sen, Robert Shiller and Richard Thaler.   Like what you're reading? Sign up for our free newsletter.

Dozens of prominent economists with extensive experience in government service signed a statement in Thursday’s Wall Street Journal calling for a carbon tax.

“Global climate change is a serious problem calling for immediate national action,” the economists said, before defining five broad principles to guide a bipartisan effort to create a new tax on carbon:  

  • A carbon tax is the most cost-effective way to harness “the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
  • The proposed carbon tax should rise every year to encourage large-scale development.
  • The price signal of a steadily rising tax should replace “cumbersome regulations” on carbon.
  • The carbon tax should include a border adjustment to protect U.S. companies and “create an incentive for other nations to adopt similar carbon pricing.”
  • To enhance the “political viability” of such a tax, the revenues collected “should be returned directly to U.S. citizens through equal lump-sum rebates.”

The Journal’s Timothy Puko said that the principles are backed by a group called the Climate Leadership Council, which has proposed an initial tax on U.S. businesses of $40 per ton of carbon emissions. The tax would produce about $200 billion per year, which translates to about $2,000 for a family of four.

One of the signatories, former Fed chair Janet Yellen, said that a “carbon tax is very popular among economists but not very popular among people. Getting a proposal that has some political viability so we can make some progress, I think that’s essential.”

In addition to Yellen, the signatories include former Fed chairs Alan Greenspan, Paul Volcker and Ben Bernanke; former White House advisors N. Gregory Mankiw, Christina Romer, Laura Tyson, Martin Feldstein, Jason Furman and Austan Goolsbee; and Nobel Prize recipients George Akerlof, Angus Deaton, Peter Diamond, Amartya Sen, Robert Shiller and Richard Thaler.  

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