Research Insights: How Can a Carbon Tax Reduce Emissions with Small Economic Impacts?
Date issued
Mar 2023
Publication
Subject
Climate Change;
Taxation;
Labor Force;
Energy;
Carbon Tax;
Paris Agreement;
Economy;
Greenhouse Gas Emission;
Climate Change Mitigation;
Gross Domestic Product;
Nationally Determined Contribution
JEL code
E13 - Neoclassical;
H23 - Externalities • Redistributive Effects • Environmental Taxes and Subsidies;
J24 - Human Capital • Skills • Occupational Choice • Labor Productivity
Category
Catalogs and Brochures
Countries can use carbon taxes to achieve their climate mitigation goals from the Paris Agreement with little economic disruption. Using carbon taxes, the United States could achieve its Paris Agreement pledge of a 26% reduction in carbon emissions with a negative effect on yearly GDP of at most 0.8%. Carbon taxes can have important effects on inequality. While skilled workers in polluting sectors experience substantial income losses from carbon taxes, they represent only a small share of the labor force: less than 2% in the United States. Workers in the green energy sector, however, stand to gain from carbon taxes.