News and Outreach: John Reilly

Ahead of the World Energy Conference (WEC) in Daegu, South Korea, Siemens is hosting a series of panels throughout the world as part of a "Road to Daegu" series. The results of this exciting journey through the energy systems of the world will be presented at the WEC on October 13-17. 

Joint Program Co-Director John Reilly participated in the U.S. panel on July 9th in Florida. The panel was on "Affordable and sustainable energy for the USA: Competitive advantage for the future?"

He was joined by Tom Kuhn, President of the Edison Electric Institute; Jim Robo, President and CEO, NextEra Energy; Michael Suess, CEO, Siemens Energy; Randy Zwirn, CEO, Siemens Energy Service Division, and CEO, Siemens Energy Americas. 

About the Panel

Affordability, security and sustainability are the three goals most countries are pursuing when it comes to their energy supply.  In the U.S., there is a strong focus on affordability, and energy prices have always been low compared to international levels.  And this is even more so today than ever before:  The country’s “shale revolution” is slashing natural gas prices to all-time lows.

But can the U.S. achieve both goals – affordability and sustainability? This was the opening question at our third Round Table discussion with Michael Süß, this time held at the headquarters of Florida Power & Light in Juno Beach, Florida... 

For John Reilly, Senior Lecturer at the renowned Sloan School of Management of the Massachusetts Institute of Technology, the efforts being undertaken in the U.S. on behalf of the environment aren’t enough. “We are a wealthy society in the U.S. and don’t have a real affordability problem in regard to energy prices – but what we can’t afford is not to be sustainable.”...
 

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Climate change seems like this complicated problem with a million pieces. But Henry Jacoby, an economist at MIT's business school, says there's really just one thing you need to do to solve the problem: Tax carbon emissions.

"If you let the economists write the legislation," Jacoby says, "it could be quite simple." He says he could fit the whole bill on one page.

Basically, Jacoby would tax fossil fuels in proportion to the amount of carbon they release. That would make coal, oil and natural gas more expensive. That's it; that's the whole plan.

Jacoby's colleague John Reilly told me the price of gasoline might rise by 25 cents a gallon in the first year. Over time, that would increase. By 2050, Reilly figures the carbon tax would add about $1 to the price of every gallon. Across the economy, prices of energy-intensive goods and services would rise. This would encourage people and businesses to be more efficient.

This is why economists love a carbon tax: One change to the tax code and the entire economy shifts to reduce carbon emissions. No complicated regulations. No rules for what kind of gas mileage cars have to get or what specific fraction of electricity has to come from wind or solar or renewables. That's by and large the way we do it now.

Reilly says the current web of rules is a more complicated and more expensive way of getting the same outcome as a carbon tax. The current system "pretty much is one of the worst ways we could do it," he says.

As with any fix for climate change, a carbon tax would hit some people harder than others. People with long commutes would pay more. People who work in coal mines could lose their jobs.

But here is where Reilly brings up what is perhaps the most surprising thing about a carbon tax: If you do it right, he says, carbon tax can be nearly painless for the economy as a whole. 

Besides reducing carbon emissions, a carbon tax brings in a bunch of money – it's a tax after all. So, Reilly says, you can reduce, say, income tax to balance out the new taxes people are paying for carbon emissions. People pay more for gas, but they get to keep more of their income.

I called around and talked to a bunch of economists about this, and they said the basic idea was sound: If you give the carbon-tax money back by cutting income taxes, you can probably offset a lot of the pain.

President Obama has indicated he would support a market-based solution to climate change. But a carbon tax would of course require an act of Congress. And right now, that seems unlikely.

John Reilly, co-director of the Joint Program on Global Change, served on the committee responsible for a new National Research Council (NRC) report on the “Effects of U.S. Tax Policy on Greenhouse Gas Emissions.”

The report found that while tax policies can make a substantial contribution to meeting the nation's climate change objectives, the current approaches do not. In fact, current federal tax provisions have a minimal net effect on greenhouse gas emissions. While the report does not make any recommendations about specific changes to the tax code, it says that policies that target emissions directly, such a carbon tax or cap-and-trade system, would be the most effective and efficient ways of reducing greenhouse gases.

Reilly, with colleague Sebastian Rausch, authored a report last summer that demonstrated the benefits of a tax on carbon emissions, that could be part of a broader tax reform package.

“Congress will face many difficult tradeoffs in stimulating the economy and job growth while reducing the deficit,” said Reilly at the time the report was released. “But with the carbon tax there are virtually no serious tradeoffs. Our analysis shows the overall economy improves, taxes are lower and pollution emissions are reduced.”

The study — “Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?”— calculated the impact a carbon tax starting at $20 per ton would have using a national economic model that details energy, taxes and household incomes. Reilly and his co-author Sebastian Rausch, now at ETH Zurich University, found that the tax would raise $1.5 trillion in revenue. That money could then be used to reduce personal or corporate income taxes, extend the payroll tax cut that expires this year, maintain spending on social programs—or some combination of these options—while reducing the deficit.

The NRC study came after Congress requested that a committee evaluate the most important tax provisions that affect carbon dioxide and other greenhouse gas emissions and estimate the magnitude of the effects.  The report considers both energy-related provisions — such as transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol, and tax credits for renewable energy — as well as broad-based provisions that may have indirect effects on emissions.

Reilly notes that his “win-win-win” study on carbon taxes showed that by “shifting the market through a tax on emissions rather than through tax credits for renewable sources, the nation would be raising revenue rather than spending it.”

Parts of the NRC’s media release were adapted for use in this news story.

To read more about the NRC’s report, click here.

To read more about the “Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?” click here.  

By: Steve LeVine

Environmental websites are buzzing that China, the world’s biggest emitter of carbon and other heat-trapping gases, is on the cusp of breaking the persistent logjam on global climate change policy by placing an absolute cap on its carbon emissions. Beijing’s impending move, writes Grist, would show that, compared with the US, “China is either the more mature of the pair, or just majorly sucking up to Mama Earth.”

The reports are inaccurate: Seven Chinese cities are enacting experimental carbon-trading programs as of 2014, and Beijing is fast reducing how much carbon is burned per unit of GDP (known as “carbon intensity”). But China hands in Beijing and the US tell me it has made no firm decision on capping absolute emissions. (The rumor began with a May 20 report by the reputable Chinese newspaper 21st Century Business Herald.)

Yet the hubbub underscores an expectation among environmentalists and others that Beijing is moving toward doing more to avoid the most catastrophic climate forecasts. Beijing already has ambitious goals for sharply reducing carbon intensity by 2015. Against the backdrop of rising local unhappiness with air pollution, China’s leadership has signaled the possibility of an even faster cleanup. Climate activists hope for another iterative jump by China—from a proportional approach to emissions reduction (reducing carbon intensity), to an absolutist strategy (a cap on total emissions).

“An absolute cap simply makes management simpler,” Deborah Seligsohn, a China expert at the University of California at San Diego, told me. “An intensity target depends on expected GDP, and so localities try to game it. They can’t game a cap.” That’s why a cap would be “a big deal domestically and internationally,” she said.

Since Deng Xiaoping launched China’s modern age in 1979, Beijing has prized economic growth over every other metric of success. No prominent expert believes that China’s emissions will decline this decade—David Fridley at Lawrence Berkeley National Laboratory told me that the only scenario for such a fast reduction is economic collapse or stagnation. The only hope is that China’s emissions growth can be tapered.

Many experts wonder how Chinese leaders will enact even the goals they have set. “Achieving these targets eventually would come at considerable economic cost, and so how China will strike a balance between local air pollution, which has become dire in some places, and the cost of controlling these pollutants is still unclear,” said John Reilly, an environmental economist at MIT.

Yet self-preservation is a powerful force. The tradeoff between economic growth and cutting emissions will become less stark if China’s leaders conclude that pollution is a serious political threat. Environmentalists are betting that China’s leaders will decide that it is.

Introduction
Of all the uncertainties climate change presents, its impact on the production and distribution of food is one of the greatest. We are already feeling the effects: 2012 was a bad year for farmers, with droughts and erratic weather decimating crops and pushing up global food prices. Food prices are at historic highs and there have been two global food crises in the last five years leading to riots in Haiti in 2008 and contributing to the Arab Spring in 2011.

Molly D. Anderson and John Reilly examine the complex challenges and trade-offs humanity faces in a world where climate change is upending traditional assumptions about where and how we can produce enough food for the world’s rapidly growing population.

Molly D. Anderson is a professor at College of the Atlantic and holds the Patrtridge Chair in Food and Sustainable Agriculture Systems.
 
Until just a few years ago, there were some blithe assumptions about how climate change would affect food security: Like migrating birds, agriculture will simply move north to escape extreme heat, and only food production will be affected by climate change.
 
Today we recognize that it’s not just temperature, but a whole set of complex interrelated factors — temperature, rainfall, timing, soils, practices throughout the food system and more — that are affected by climate change.
 
Each crop has its own ideal set of circumstances. Having too many warm nights can be deadly for some crops. Not having enough hours of nighttime freeze can hurt others. Human societies have evolved with agriculture over the last 10,000 years to use particular crops in particular places. Now we’re experimenting with drastic changes in a matter of decades.
 
It’s not going to be easy, for a number of reasons, for agriculture to just move north. Farming is one of the most place-based occupations in the world. Farmers won’t easily pick up and move north. If they do, the soil they’ll find will be completely different.
 
Climate change isn’t just affecting the production of food; it’s also affecting consumption of and access to food. Ocean acidification will lower fish catches, which in turn will increase demands on land-based foods. Climate refugees will need new access to food, yet will be unable to produce their own. Food safety will become more challenging.
 
Food security, as defined by the Food and Agriculture Organization of the UN (FAO), is “when all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.”
 
Even without climate change, with the growing world population, food security will present a challenge. We need to look for win/win solutions — ones that improve food security and sustainability of food systems on the one hand and that mitigate and adapt to climate change on the other.
 
On the farm level, this means promoting the use of renewable energy in food production, restoring degraded soils and diversifying crops.
 
On a state and regional level, it means first recognizing food as a basic human right and then making policy decisions that flow from that recognition. For example, using land to produce food would take priority over using land to produce biofuels or animal feed; and states and regions would establish adequate food reserves and be able to set their own food and trade policies. States and regions must promote energy and water efficiency throughout the food system as well.
 
Globally, we need to slow population growth. One of the most effective ways to do that is to educate girls and women and provide access to contraceptives. We also need to reduce food waste and over-consumption, particularly by wealthy people and nations of the world.
 
When it comes to food security, the developed world is answering the wrong questions. We’ve focused on increasing availability of food and “feeding the world” (to the benefit of our own corporations). We need to focus on improving food access, reducing our own over-consumption, and addressing why poor people can’t feed themselves in a world with more than enough food for all its inhabitants.
 
John Reilly is senior lecturer and co-director of the Joint Program on the Science and Policy of Global Change and a senior lecturer at the MIT Sloan School of Management.
 
Since 1980, the world’s breadbaskets — areas where major crops like maize, wheat, rice, and soy beans are grown — have warmed significantly. Interestingly, the U.S. is the major exception to this global trend. Our agricultural regions have actually experienced somewhat cooler temperatures overall — with a few exceptions.
 
The effects of climate change on agriculture are likely to be mixed, benefiting crops in some areas and harming crops in others. In colder regions, like New England and much of Canada, growing seasons are becoming longer. We can expect lower crop yields in regions where heat exceeds critical thresholds.
 
Just as agriculture is a major cause of greenhouse gas emissions, it could also play a major role in mitigating climate change.
Scientists estimate that doubling CO2 concentrations from pre-industrial levels would increase crop yields by as much as 20 to 30 percent, but would also increase the growth of weeds. Furthermore, the increase in crop yields from the effects of more carbon dioxide in the air would largely be offset by the effects of increased temperatures and decreased soil moisture.
 
Agriculture and climate are both highly complex pieces of the Earth’s ecosystem. Constructing reasonably accurate, useful models of how the two interact is an enormous scientific challenge.
 
My colleagues at MIT and I have begun developing a model for predicting crop yield changes in the world’s breadbasket regions. We’ve found wide variations in how yields are likely to be affected by climate change. Generally speaking, whether we looked at maize (corn) in North America and West Africa, wheat in Europe and Asia, or soybeans in South America, the results were the same: Areas closer to the equator saw declining yields, some up to 50 percent, while areas closer to the North and South Poles showed increased yields. They balance out at some level, but this kind of change would cause lots of dislocation.
 
With global population projected to peak at 10 billion sometime after 2050, and with rising incomes allowing more people to eat a resource-intensive diet (i.e. eating more meat), we face great agricultural challenges even without the dislocation and disruption climate change will cause.
 
Just as agriculture is a major cause of greenhouse gas emissions, it could also play a major role in mitigating climate change. Our studies show that an aggressive global reforestation policy could result in a half-degree Celsius of avoided warming by 2100. The key would be putting a price on carbon for removing carbon dioxide from the atmosphere. This price would create an incentive for landholders to reforest their land, because forests are great absorbers of carbon.
 
Reforestation comes at a cost. More land for forests means less land for agriculture. That means we could expect to see higher food prices, especially for livestock.
 
This is part of the trilemma of what to do with land in the 21st century. Do we use it to produce biofuels as a substitute for fossil fuels? Do we use it to produce food? Do we use it to preserve biodiversity and store carbon?
 
There are unavoidable trade-offs no matter what we decide. There are no easy solutions when it comes to climate change and food security. What is clear is that the worst “solution” would be continued inaction in the face of the overwhelming evidence that climate change has real and growing effects.

 

On Tuesday, four Democrats in Congress unveiled a brand-new proposal for a carbon tax. The set-up is simple: The U.S. government would slap a fee on fossil-fuel emissions and refund the revenue back to the public.

But there’s a twist: The precise details of the carbon tax have yet to be thrashed out. The four lawmakers are soliciting public comments for how big the tax should be and how best to rebate the money.

The proposal is being put forward by Reps. Henry Waxman and Earl Blumenauer, as well as Sens. Sheldon Whitehouse and Brian Schatz.

Here are the key questions they’re wrestling with:

1. What is the appropriate price per ton for polluters to pay? The draft contains alternative prices of $15, $25 and $35 per ton for discussion purposes.

2. How much should the price per ton increase on an annual basis? The draft contains a range of increases from 2 percent to 8 percent per year for discussion purposes.

3. What are the best ways to return the revenue to the American people? The discussion draft proposes putting the revenue toward the following goals, and solicits comments on how to best accomplish each: (1) mitigating energy costs for consumers, especially low-income consumers; (2) reducing the Federal deficit; (3) protecting jobs of workers at trade-vulnerable, energy intensive industries; (4) reducing the tax liability for individuals and businesses; and (5) investing in other activities to reduce carbon pollution and its effects.

4. How should the carbon fee program interact with state programs that address carbon pollution?

Those are, indeed, difficult questions. So let’s take a look at each of them in turn:

1) How big should the carbon tax be? Economists have long argued that a carbon tax can be an elegant way to tackle climate change. If you tax oil, coal, and natural gas and make them more expensive, then people and companies will either use fewer fossil fuels or seek alternatives. Markets will adjust to the new price.

But there’s plenty of dispute over what the appropriate price on carbon emissions should be. For that, you need to figure out how much damage heat-trapping greenhouse gases are actually causing — and figure out how highly to value future generations. The federal government currently pegs the “social cost of carbon” at $21 per ton. Other economists have concluded that the price should be up to 12 times as much.

2) How quickly does the tax need to rise to curtail emissions? A tax that rises each year should, in theory, drive down emissions. But a lot could depend on how quickly the tax actually rises.

Here’s one example: Sebastian Rausch and John M. Reilly of the MIT Global Change Institute recently put forward a proposal for a $20-per-ton carbon tax that would rise 4 percent each year, starting in 2013. (The funds would be used to offset taxes elsewhere.) Here’s what their model predicts would happen to U.S. greenhouse-gas emissions:

Under this proposal, U.S. greenhouse gas emissions do start declining quite a bit (this is the green line), with a relatively small impact on the U.S. economy. But by 2030, emission levels stall, even though the carbon tax keeps rising by 4 percent each year. The United States wouldn’t get anywhere near the 80 percent cut by 2050 that the White House has envisioned.

It’s possible the MIT model is too pessimistic or wrong. It’s also possible that deeper emissions cuts might require a carbon tax that rises even more sharply. But a higher tax could also prove more costly to the economy unless it’s offset properly. So there’s a delicate trade-off here.

3) What’s the best way to use the carbon tax revenue? A carbon fee usually gets criticized for hurting poorer Americans the most—they spend the biggest slice of their income on gasoline and other energy-intensive products, after all. But Rausch and Reilly found that a lot of the distributional effects depend on how Congress rebates the revenue, as shown in the chart below:

The green line shows how different income groups would be affected in 2015 if the carbon tax was used to fend off cuts to social welfare programs like Medicaid. Lower-income Americans would benefit significantly, while wealthier Americans would take a small hit.

By contrast, the red and blue lines show the effects if revenue from the carbon tax was used to cut the corporate tax or personal income tax—in those cases, higher-income Americans would come out ahead.

If, however, carbon tax revenue was used to cut payroll taxes—that’s the black line—then the welfare effects in 2015 are more or less neutral.

On the flip side, some experts like Mark Muro of Brookings have argued that a portion of the revenue raised by a carbon tax should be used to fund public clean-energy R&D. The country won’t wean itself off oil solely because carbon gets taxed. We’ll also need public-transit alternatives, or electric-vehicle infrastructure, or futuristic new hydrogen cars. And in many cases, Muro argues, the government may have to help bankroll this infrastructure.

4) How does the carbon tax interact with the states? California is currently operating its own comprehensive program to cut greenhouse-gas emissions 80 percent by 2050. And 10 states in the Northeast have a small cap-and-trade program for electric utilities. Should these states somehow get “credit” for moving early on global warming? And what’s the best way to do that under a carbon-tax system?

In any case, these are all difficult questions. Those who want to join in on this debate can submit comments to the lawmakers at cutcarbon@mail.house.gov. The comment period ends April 21.

A Win for Energy and America

By John Reilly

THE NEW - STILL DIVIDED - CONGRESS reconvenes this month, and its first order of business is the looming federal deficit. The president made his desires clear in his victory speech: "We want our children to live in an America that isn't burdened by debt . that isn't threatened by the destructive power of a warming planet." Meanwhile, congressional leaders recognize the need for compromise.

Some suggest that closing the deficit would require both budget cuts and increased revenue. The riddle in any tax reform is the need to reduce the tax burdens on wage earners and investors, while generating revenue for essential government services. A carbon tax might answer this riddle. It could help avoid some tax hikes and spending cuts, while stimulating the economy, securing America's energy future, and giving utilities and energy companies greater certainty.

The Congressional Budget Office found that a tax on carbon dioxide, starting at $20 per ton, could raise $1.25 trillion over the next decade. Our research puts those numbers higher - at $1.5 trillion - while cutting emissions by more than 20 percent by 2050. With the money raised, Congress could maintain income tax cuts and avoid serious cuts to social programs.

Lowering taxes and maintaining funding for social programs would give Americans more money to spend, boosting the economy. This is particularly true in the short term, if tax cuts and spending are skewed toward lower income households, which spend more of their income, stimulating weak consumer demand. On the other hand, cutting these programs and raising other taxes would drag down our economy, so much so that the loss would more than offset the cost of a carbon tax.

When it comes to the pure economics, a carbon tax makes the most sense. But what is a win for our economy is also a win for the energy industry. For years, many in the industry have called for a clear, market-based approach to secure America's energy future. Instead, they've received mixed signals and patchwork regulations. Meanwhile, narrow tax incentives have allowed the government - not the market -to choose winners and losers. This approach has been inefficient and ineffective.

A carbon tax, if part of broad tax reform, could bring an end to this approach, providing certainty to utilities and energy companies and allowing these businesses to make the investments needed to usher in America's clean, prosperous and secure energy future. A carbon tax would provide a clear market signal for U.S. businesses and consumers, giving them the flexibility to choose technologies that save energy and money, boosting sales of more fuel-efficient cars and other goods. With greater efficiency, fuel and energy costs could actually go down - not up - as the U.S. economy turns from spending and borrowing to saving and investing in our future.

Partisan gridlock and the political fear of anything labeled a "tax" may make this sensible solution seem impossible. But because it makes the most economic sense, it is receiving support from both sides of the aisle.

As the chairman of President George W. Bush's Council of Economic Advisers, Greg Mankiw, has said, "Economists have long understood that the key to smart environmental policy is aligning private incentives with true social costs and benefits. That means putting a price on carbon emissions, so households and firms will have good reason to reduce their use of fossil fuels and to develop alternative energy sources." There are usually hefty trade-offs and hard-set winners and losers in politics. This time, that doesn't have to be the case.
 

By: Michael Vaughan

Two interesting issues that in the banality of the U.S. presidential campaign will likely never be discussed:

1. the extent of the sea ice covering the Arctic Ocean is now the smallest observed in the three decades since consistent satellite observations of the polar cap began, according to scientists from NASA;

2. an important study finds a carbon tax would enable the United States to find the means to both close the deficit gap and revive the economy.

While the two contenders are slanging each other about tax returns and birth certificates both surely know that NASA and MIT have to be taken seriously. Mitt Romney (not MIT) made his fortune in Boston and Barack Obama went to Harvard. MIT (Massachusetts Institute of Technology) has more new technology patents than most countries on Earth. Harvard has been lucky enough to have had among its alums a well-known billionaire who created Facebook plus eight who have became President of the United States.

When evidence becomes undeniable you have to wonder why those who make big decisions won’t discuss the evidence. Intelligent public policy matters. Yet the news is always obsessed about whether the teachers get their new raise or not. Meanwhile there are policy options that make a huge amount of sense that are never discussed, or even mentioned, in the daily news cycle.

The MIT study found that taxing carbon at $20 a ton in the U.S. would generate $1.5-trillion in revenue in a 10-year period, which would reduce corporate and personal income taxes, maintain social services spending and reduce the deficit.

“With the carbon tax there are virtually no serious trade-offs. Our analysis shows the overall economy improves, taxes are lower and pollution emissions are reduced,” said John M. Reilly, co-director of MIT’s Joint Program on the Science and Policy of Global Change. The study said the carbon tax would lower pollution by 20 per cent by 2050 and prevent oil imports from rising. It would also, most importantly, shift energy markets to clean technology.

Some Republications are coming around to the fact that the United States is facing the expiration of the “Bush” tax cuts in 2013 – the fiscal cliff. Even supply-side economists are reluctantly embracing a fee on carbon emissions. There are many global warming deniers in the GOP but others believe if the U.S. needs to raise revenue, why not just tax global warming pollution? The MIT analysis suggests that a carbon tax would be a more economically beneficial way of raising revenue than payroll or income taxes.

Additionally, the MIT report argues that a carbon tax would accomplish other important objectives. Fossil-fuel use would go down, oil imports would shrink slightly and U.S. carbon-dioxide emissions would decline. A carbon tax is tax levied on all carbon content of fuels. Carbon dioxide is a heat-trapping "greenhouse" gas. Carbon is present in hydrocarbon fuels – coal, petroleum, and natural gas – and is released as carbon dioxide (CO2) when they are burned. In contrast, non-combustion energy sources – wind, sunlight, hydropower and nuclear – do not convert hydrocarbons to CO2.

Yet, even with a carbon tax, the United States would still fall short of its long-term climate goals, which involve an 80 per cent cut in emissions below 1990 levels by mid-century. According to MIT calculations, a modest carbon tax, on its own, wouldn’t get the United States close to that longer-term mark; however, it would still make sense as a more economically efficient way of raising revenue.

If an intelligent public policy can improve the economy, reduce trade deficits, help the environment and keep the U.S. from going broke – why wouldn’t it at least be discussed in the election of the so-called most powerful person on Earth?

By: Brad Plumer

With the United States facing the expiration of a slew of tax cuts in 2013—the dread “fiscal cliff”—there has been plenty of interest in offbeat tax-reform proposals. And one idea that a few economists keep knocking around is a fee on carbon emissions. After all, if we need to raise revenue, why not just tax global-warming pollution?

A new paper from the MIT Global Change Institute lays out how a carbon tax might work in practice. The authors model what would happen if, this December, Congress enacted a small fee on carbon emissions to fend off a portion of the tax hikes and spending cuts that are scheduled to occur. The carbon tax would be levied directly on fossil fuels—on coal that comes out of the mine, say, or oil that’s shipped in from overseas—and would start at $20 per ton of carbon in 2013, rising 4 percent each year thereafter.

The authors, Sebastian Rausch and John M. Reilly, estimate that this tax would raise $1.5 trillion over the next 10 years. If that revenue were then used either to cut income taxes, reduce payroll taxes, or deflect cuts to social-spending programs, the MIT authors find, most Americans would be slightly better off than if Congress simply let the fiscal cliff hit, with the Bush tax cuts and payroll tax cuts expiring automatically. (Using the carbon tax in this way would lead to an 0.02 percent bump in consumption and leisure over time.)

Now, the betting line is that Congress will do something to avert the looming tax hikes and spending cuts, so this isn’t a terribly realistic scenario. Implementing a carbon tax next year would still hurt the economy—it would just hurt slightly less than the fiscal cliff. Still, the broader point of the MIT analysis is to suggest that a carbon tax could be a more economically beneficial way of raising revenue than, say, payroll or income taxes. So even if Congress waited until 2014 or 2015 or whenever the U.S. economy has recovered, replacing other taxes with a carbon tax could still provide a minor economic boost (see the first graph below).

A carbon fee usually gets criticized for hurting poorer Americans the most—they spend the biggest slice of their income on gasoline and other energy-intensive products, after all. But Rausch and Reilly found that a lot of the distributional effects depend on what Congress does with the revenue, as shown in the chart below:

CTCorp = carbon tax used to cut corporate tax rate, CTPersInc = carbon tax used to cut income tax rate, CTPayroll = carbon tax used to cut payroll taxes, CTTransfer = carbon tax used to bolster social welfare programs like Medicaid

The green line shows how different income groups would be affected in 2015 if the carbon tax was used to fend off cuts to social welfare programs like Medicaid. Lower-income Americans would benefit significantly, while wealthier Americans would take a small hit. By contrast, the red and blue lines show the effects if revenue from the carbon tax was used to cut the corporate tax or personal income tax—in those cases, higher-income Americans would come out ahead. If, however, a carbon tax was used to cut payroll taxes—that’s the black line—then the welfare effects in 2015 are more or less neutral.

The MIT report argues that a carbon tax would accomplish a few other things as well. Fossil-fuel use would go down, oil imports would shrink slightly, and U.S. carbon-dioxide emissions would decline. On that last point, however, it’s worth noting that the carbon tax proposed by the MIT study only gets the United States a fraction of the way toward its long-term climate targets, as shown in this graph:

Blue line: MIT reference case with no carbon tax. Black line: EIA reference. Green line: Scenario with MIT carbon tax in place.

With the carbon tax proposed by MIT (that’s the green line in the chart above), U.S. emissions would be 14 percent below 2006 levels by 2020 and 20 percent below 2006 levels by 2050. That’s lower than if there was no carbon tax at all.

Yet the United States would still fall short of its long-term climate goals, which involve an 80 percent cut in emissions below 1990 levels by mid-century. According to MIT calculations, a modest carbon tax, on its own, wouldn’t get the United States close to that longer-term mark. It might make sense as a more economically efficient way of raising revenue. But the tax would either have to be hiked dramatically or combined with other clean-energy measures in order to make a significant dent in tackling global warming.