The Case Against a U.S. Carbon Tax

This analysis describes several serious problems with those claims. The actual economics of climate change — as summarized in the peer‐​reviewed literature as well as United Nations (UN) and Obama administration reports — reveal that the case for a U.S. carbon tax is weaker than the carbon tax proponents claim.

Future economic damages from carbon dioxide emissions can only be estimated in conjunction with forecasts of climate change. But recent history shows those forecasts are in flux, with an increasing number of forecasts of less warming appearing in the scientific literature in the last four years. Additionally, we show some rather stark evidence that the family of models used by the UN’s Intergovernmental Panel on Climate Change (IPCC) is experiencing a profound failure that greatly reduces their forecast utility.

If the case for emission cutbacks is weaker than the public has been led to believe, the claim of a double dividend is on even shakier ground. There really is a consensus in this literature, and it is that carbon taxes cause more economic damage than generic taxes do on labor or capital, so that in general even a revenue‐​neutral carbon tax swap would probably reduce economic growth.

When moving from academic theory to historical experience, we see that carbon taxes have not lived up to the promises of their supporters. In Australia, the carbon tax was quickly removed after the public recoiled against electricity price hikes and a faltering economy. Even in British Columbia (BC), Canada — touted as having the world’s finest example of a carbon tax — the experience has been underwhelming. After an initial (but temporary) drop, the BC carbon tax has not yielded significant reductions in gasoline purchases, and it has arguably reduced the BC economy’s performance relative to the rest of Canada.

Both in theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe. At the same time, there is mounting evidence in the physical science of climate change to suggest that human emissions of carbon dioxide do not cause as much warming as is assumed in the current suite of official models. Policymakers and the general public must not confuse the confidence of carbon tax proponents with the actual strength of their case.

However, when the Obama administration’s Interagency Working Group (IWG) calculated the SCC, it ignored that clear OMB guideline and reported only a global value of the SCC. Thus, if a U.S. regulation (or carbon tax) is thought to reduce CO2 emissions, then the estimated benefits (calculated using the SCC) will vastly overstate the benefits to Americans.

As an affluent nation, the United States is economically much less vulnerable than other nations to the vagaries of weather and climate. Using two different approaches, the IWG in 2010 “determined that a range of values from 7 to 23 percent should be used to adjust the global SCC to calculate domestic effects. Reported domestic values should use this range.”³ Therefore, following OMB’s clear guideline on reporting the domestic effects of proposed regulations, the SCC value would need to be reduced anywhere from 77 to 93 percent to show the benefit to Americans from stipulated reductions in their CO2 emissions.

To repeat, those figures all derive from the Obama administration’s own IWG report. Whether or not Americans should consider any potential effects of their actions that accrue outside of the United States is outside the scope of this Policy Analysis, but it is important to recognize that the SCC does include such foreign benefits when used to assess the cost‐​benefit of federal actions, estimate the efficiency of carbon pricing mechanisms, or both.

SCC Calculations 

In addition to such procedural problems with the use of the SCC in federal policy, there are deeper conceptual concerns. The average layperson may have the belief that the SCC is an empirical fact of nature that scientists in white lab coats measure with their equipment. However, in reality the SCC is a malleable concept that is entirely driven by analysts’ (largely arbitrary) initial assumptions. The estimated SCC can be quite large, small, or even negative—the latter meaning that greenhouse gas emissions should arguably be subsidized because they benefit humanity—depending on defensible adjustments of the inputs to the analysis.

But the possibility of such negative SCC values is rarely, if ever, reported. A recent study assessed the scientific literature on the SCC and determined that there exists a large and significant publication bias toward reporting only those results that indicated a positive SCC.⁴ The authors calculated that the selection bias resulted in a three‐ to four‐​times overestimate of the mean SCC value in the current mainstream economics literature. Such selective reporting of results can build upon itself to further enhance the biases in the literature, for example when future studies are developed from extant findings.

The most popular current approach used by U.S. policymakers to estimate the SCC involves the use of computer‐​based integrated assessment models (IAMs), which are complex simulations of the entire global economy and climate system over hundreds of years. Officially, the IAMs are supposed to rely on the latest results in the physical science of climate change, as well as on economic analyses of the effects of climate change on human welfare. Such effects are measured in monetary units but include a wide range of nonmarket categories (such as flooding and loss of ecosystem services). With particular assumptions about the path of emissions, the physical sensitivity of the climate system to atmospheric CO2 changes, and the effect on humans from changing climate conditions, the IAMs estimate the flow of incremental damages occurring centuries into the future as a result of an additional unit of CO2 emissions in some particular year. Then this flow of additional dollar damages (over the centuries) can be turned into an equivalent present value expressed in the dollars at the date of the emission, using a discount rate chosen by the analyst. The rate typically is not derived from observations of market rates of interest, but is instead picked (quite openly) by the analyst according to the analyst’s ethical views on how future generations should be treated.

In May 2013, the IWG produced an updated SCC value by incorporating revisions to the underlying three IAMs that the IWG used in its initial 2010 SCC determination.⁵ But at that time, the IWG did not update the equilibrium climate sensitivity (ECS) employed in the IAMs. The ECS is a critical concept in the physical science of climate change. Loosely speaking, it refers to the long‐​run (after taking into account certain feedbacks) warming in response to a doubling of CO2 concentrations. It is incredibly significant that the published estimates of the ECS have been trending downward, yet the IWG did not adjust this key input into the computer models. Specifically, the IWG made no adjustment in this parameter in its May 2013 update despite there having been, since January 1, 2011, at least 15 new studies and 24 experiments, involving 50 scientists, that examined the ECS, each lowering the best estimate and tightening the error distribution about that estimate.

Although it is not universally accepted that both the median estimate of the ECS and the risk of higher‐​than‐​anticipated warming are falling, such findings have come to dominate the contemporary scientific literature on the topic. The new, lower sensitivity findings are largely derived from improved estimates of the historical changes in climate forcings and temperatures over timespans ranging from centuries⁶ to millennia.⁷ In many cases, the new findings have supplanted earlier estimates that were based on poor assumptions and older parameter estimates.⁸ The few published findings in support of the status quo for sensitivity estimates have been met with methodological critique⁹ or exhibit a poor match to current evolution of global surface temperature patterns.¹⁰

The dramatically lowered sensitivity estimates found in the recent literature are graphically shown in Figure 1. The range used by the IWG is clearly outdated; it was calibrated using findings through 2007,¹¹ a calibration that no longer best describes the existing scientific literature.

Figure 1. Low Climate Sensitivity Estimates from the Recent Scientific Literature Compared with Roe and Baker Calibration Used by the Interagency Working Group

Note: The median (indicated by the small vertical line) and 90 percent confidence range (indicated by the horizontal line with arrowheads) of the climate sensitivity estimate used by the Interagency Working Group on the Social Cost of Carbon Climate (Roe and Baker 2007) is indicated by the top black arrowed line. The average of the similar values derived from 21 different determinations reported in the recent scientific literature is given by the gray arrowed line (second line from the top). The sensitivity estimates from the 21 individual determinations of the Equilibrium Climate Sensitivity (ECS) as derived from new research published after January 1, 2011, are indicated by the arrowed lines in the lower portion of the chart. The arrows indicate the 5 to 95 percent confidence bounds for each estimate along with the best estimate (median of each probability density function; or the mean of multiple estimates; short vertical line). M. J. Ring et al. present four estimates of the climate sensitivity and the box encompasses those estimates. See M. J. Ring et al., “Causes of the Global Warming Observed since the 19th Century,” Atmospheric and Climate Sciences2 (2012): 401–15, doi: 10.4236/acs.2012.24035. Spencer and Braswell produce a single ECS value best matched to ocean heat content observations and internal radiative forcing.

Roe and Baker 2007 = G. H. Roe and M. B. Baker, “Why is Climate Sensitivity So Unpredictable?,” Science 318 (2007): 629–32; Lewis and Curry 2014 = N. Lewis and J. A. Curry, “The Implications for Climate Sensitivity of AR5 Forcing and Heat Uptake Estimates,” Climate Dynamics 45 (2014): 1009–23; Stevens 2015 = B. Stevens, “Rethinking the Lower Bound on Aerosol Radiative Forcing,” Journal of Climate 28 (2015): 4794–819; Skeie et al. 2014 = R. B. Skeie et al., “A Lower and More Constrained Estimate of Climate Sensitivity Using Updated Observations and Detailed Radiative Forcing Time Series,” Earth System Dynamics 5 (2014): 139–75; Loehle 2014 = C. Loehle, “A Minimal Model for Estimating Climate Sensitivity,” Ecological Modelling 276 (2014): 80–84; Spencer and Braswell 2013 = R. W. Spencer and W. D. Braswell, “The Role of ENSO in Global Ocean Temperature Changes during 1955–2011 Simulated with a 1D Climate Model,” Asia‐​Pacific Journal of Atmospheric Science 50 (2013): 229–37; Otto et al. 2013 = A. Otto et al., “Energy Budget Constraints on Climate Response,” Nature Geoscience 6 (2013): 415–16; Masters 2013 = T. Masters, “Observational Estimates of Climate Sensitivity from Changes in the Rate of Ocean Heat Uptake and Comparison to CMIP5 Models,” Climate Dynamics 42 (2013): 2173–81; Lewis 2013 = N. Lewis, “An Objective Bayesian Improved Approach for Applying Optimal Fingerprint Techniques to Estimate Climate Sensitivity,” Journal of Climate 26 (2013): 7414–29; Forest et al. 2006 = C. E. Forest et al., “Estimated PDFs of Climate System Properties Including Natural and Anthropogenic Forcings,” Geophysical Research Letters 33 (2006): L01705; Hargreaves et al. 2012 = J. C. Hargreaves et al., “Can the Last Glacial Maximum Constrain Climate Sensitivity?” Geophysical Research Letters 39 (2012): 24702; Ring et al. 2012 = M. J. Ring et al., “Causes of the Global Warming Observed since the 19th Century,” Atmospheric and Climate Sciences 2 (2012): 401–15; van Hateren 2012 = J. H. van Hateren, “A Fractal Climate Response Function Can Simulate Global Average Temperature Trends of the Modern Era and the Past Millennium,” Climate Dynamic 40 (2012): 2651–70; Aldrin et al. 2012 = M. Aldrin et al., “Bayesian Estimation of Climate Sensitivity Based on a Simple Climate Model Fitted to Observations of Hemispheric Temperature and Global Ocean Heat Content,” Environmetrics 23 (2012): 253–71; Lindzen and Choi 2011 = R. S. Lindzen and Y-S. Choi, “On the Observational Determination of Climate Sensitivity and Its Implications,” Asia‐​Pacific Journal of Atmospheric Science 47 (2011): 377–90; Schmittner et al. 2011 = A. Schmittner et al., “Climate Sensitivity Estimated from Temperature Reconstructions of the Last Glacial Maximum,” Science 334 (2011): 1385–88; Annan and Hargreaves 2011 = J. D. Annan and J.C Hargreaves, “On the Generation and Interpretation of Probabilistic Estimates of Climate Sensitivity,” Climatic Change 104 (2011): 324–436.

The abundance of literature supporting a lower climate sensitivity was at least partially reflected in the latest (2013) IPCC assessment:

Given the consensus of recent literature, we believe that the IWG’s assessment of the low end of the probability density function is indefensible and the IWG’s estimate of the shape of the high end of the ECS distribution is increasingly questionable.¹³

The findings of Otto and others,¹⁴ which were available at the time of the IWG’s 2013 revision, are particularly noteworthy in that 15 of the paper’s 17 authors were also lead authors of the 2013 IPCC report. The authors estimate a mean sensitivity of 2.0°C and a 5–95 percent confidence interval of 1.1 to 3.9°C. If the IPCC truly defined the consensus, that consensus is different from what the IWG claims. Instead of a 95th percentile value of 7.14°C, as used by the IWG, a survey of the recent scientific literature suggests a value of 3.5°C—more than 50 percent lower. That is a very important difference because the high end of the ECS distribution has a large effect on the SCC determination—a fact frequently noted by the IWG.

Chapters 17–19 of Michaels and Knappenberger give an extensive discussion of the lower sensitivity research, including some new and paradigm‐​shifting research by Bjorn Stevens and Nic Lewis.¹⁵

To see just how significant some of the apparently innocuous assumptions can be, consider the latest IWG estimates of the SCC. For an additional ton of emissions in the year 2015, using a 3 percent discount rate, the SCC is $36. However, if we use a 2.5 percent discount rate, the SCC rises to $56 per ton, whereas a 5 percent discount rate yields an SCC of only $11 per ton.¹⁷ Note that that huge swing relies on the same underlying models of climate change and economic growth; the only change is in adjustments of the discount rate, and the values used are quite plausible. Indeed, the IWG came under harsh criticism because it ignored explicit OMB guidance to include a 7 percent discount rate in all federal cost‐​benefit analyses, presumably because the SCC at such a discount rate would be close to $0 per ton or even negative.¹⁸

The reason the IWG estimates of the SCC are so heavily dependent on the discount rate is that the three underlying computer models all show relatively modest damages from climate change in the early decades. Indeed, one model (Richard Tol’s FUND model) actually exhibits net benefitsfrom global warming through about 3°C of warming relative to preindustrial temperatures.¹⁹ The higher the discount rate, the more weight is placed on earlier time periods (when global warming is not as destructive or is even beneficial) and the less important are the large damages that will not occur in the computer simulations for centuries. Economists do not agree on the appropriate discount rate to use in such settings because the usual arguments in favor of market‐​based measures (which would yield a very low SCC) are not as compelling when current policy decisions do not bind future policymakers.²⁰ Such are the difficulties in making public policy on the basis of threats that might not fully manifest themselves for another two generations.

If the economic models were updated to more accurately reflect the latest developments from the physical and biological sciences, the estimated SCC would likewise decline between one‐​third and two‐​thirds²¹ because lower temperature increases would translate into reduced climate change damages. That is a sizeable and significant reduction.

Model Design and Inputs 

Then there are problems with the climate models themselves. Clearly, a large and growing discrepancy exists between their predictions and what is being observed, as shown in Figure 2.

Figure 2. A Comparison of Observed and Modeled Temperatures in the Lower Atmosphere

Source: Adapted from John Christy’s February 2, 2016, testimony to the U.S. House Committee on Science, Space, and Technology.

Note: Centered five‐​year running means of 102 individual model projections (black) used in the 2013 IPCC report for the middle troposphere versus both weather balloon (gray circles) and satellite observations (open squares). The linear trend (based on 1979–2014) of all times series intersects zero at 1979. Note that the five‐​year running means are shown for periods containing at least three nonmissing values.

Our illustration, developed from recent U.S. House of Representatives testimony by John Christy of the University of Alabama, Huntsville,²² dramatically shows the climate modeling problem in a nutshell. It shows model‐​predicted and observed temperatures in the middle troposphere rather than at the surface, with maximum sampling at about 13,000 feet. Those are less compromised by Earth’s complicated surface and humanity’s role in altering it. More important, though, is that the vertical profile of temperature is what determines atmospheric stability. When the lapse rate—the difference between the lowest layers and higher levels—is large, the atmosphere is unstable. Instability is the principal source for global precipitation. Although models can be (and are) tuned to mimic changes in surface temperatures, the same can’t be done as easily for the vertical profile of temperature changes.

As the figure indicates, the air in the middle troposphere is warming far more slowly than has been predicted, even more slowly than the torpid surface is warming. Consequently, the difference between the surface and the middle troposphere has become slightly greater, a condition which should produce a very slight increase in average precipitation. On the other hand, the models forecast that the difference between the surface and the middle troposphere should become less, a condition which would add pressure to decrease global precipitation.

The models are therefore making systematic errors in their precipitation projections. That has a dramatic effect on the resultant climate change projections. When the surface is wet, which is what occurs after rain, the sun’s energy is directed toward the evaporation of that moisture rather than to directly heating the surface. In other words, much of what is called “sensible weather” (the kind of weather a person can sense) is determined by the vertical distribution of temperature. If the popular climate models get that wrong (which is what is happening), then all the subsidiary weather may also be incorrectly specified.

Therefore, problems and arbitrariness arise not just from the economic assumptions but also from the physical models that are used as inputs to the SCC calculations. The situation is even worse than described by Pindyck.

Although the modeled sensitivities are dropping, there are still indications that the models themselves are too hot. None of the current batch of official SCC calculations accounts for this.

Carbon Tax Reform “Win‐​Wins”? The Elusive “Double Dividend” 

Some proponents of a carbon tax have tried to decouple it entirely from the climate change debate. They argue that, if the receipts from a carbon tax were devoted to reductions in taxes on labor or capital, then the economic cost of the carbon tax would be reduced and might even be negative. In other words, they claim that, by “taxing bads, not goods,” the United States might experience a double dividend in which we tackle climate change and boost conventional economic growth.

Such claims of a double dividend are emphasized in appeals to libertarians and conservatives to embrace a carbon tax‐​swap deal. For example, in a 2008 New York Times op‐​ed calling for a revenue‐​neutral carbon tax swap, Arthur Laffer and Bob Inglis wrote, “Conservatives do not have to agree that humans are causing climate change to recognize a sensible energy solution.”³⁵ For another example, in his 2015 study titled “The Conservative Case for a Carbon Tax,” Niskanen Center president Jerry Taylor writes, “Even if conservative narratives about climate change science and public policy are to some extent correct, conservatives should say ‘yes’ to a revenue‐​neutral carbon tax.”³⁶

As a practical matter, it is tempting to dismiss the idea of revenue‐​neutral, “pro‐​growth” carbon tax reform as a red herring because it is very unlikely that any national politically feasible deal would respect revenue neutrality. Revenue neutrality has certainly not happened at other levels of government. California governor Jerry Brown, for example, wanted to use revenue from California’s cap‐​and‐​trade program to subsidize a high‐​speed rail network.³⁷ The Regional Greenhouse Gas Initiative—which is the cap‐​and‐​trade program for power plants in participating Northeast and Mid‐​Atlantic states—uses its revenue to subsidize renewables, energy efficiency projects, and other green investments.³⁸ In Washington State, Governor Jay Inslee wants to install a new state‐​level cap‐​and‐​trade levy on carbon emissions to fund a $12.2 billion transportation plan.³⁹

Even Taylor, in his paper, advocates a non–revenue-neutral carbon tax that would impose a net tax hike of at least $695 billion in its first 20 years.⁴⁰ It is possible that this support was a mere oversight (i.e., that in his study Taylor genuinely believed he was pushing a revenue‐​neutral plan but failed to appreciate its details), but he did later write on the Niskanen Center blog: “But what if a tax‐​for‐​regulation swap were to come up in an attempt to address budget deficits and the looming fiscal imbalance? . . . But even were those fears realized, conservatives should take heart: using carbon tax revenues to reduce the deficit makes good economic sense.”⁴¹

With progressives enumerating the various green investments that could be funded by a carbon tax, and, with even one of the leaders in the conservative pro–carbon tax camp laying the intellectual foundation for a net tax hike, it should be clear that a revenue‐​neutral deal at the federal level is very unlikely.

Putting aside that practical concern, there are economic reasons to be skeptical of the idea. For example, a 2013 Resources for the Future (RFF) study⁴² considered the different effects on gross domestic product (GDP) of various methods of implementing a revenue‐​neutral carbon tax at varying levels. Figure 3 reproduces their findings for the case of a $30 per ton tax on CO2 (in 2012 dollars), which would be completely revenue neutral, with the funds being returned to citizens through one of four ways: (1) reductions in the corporate income tax rate and personal income tax rate on dividends, interest, and capital gains (solid black line); (2) reductions in the payroll tax rate and personal income tax rate on labor income (dotted black line); (3) reductions in state sales tax rates (solid gray line); or (4) a lump‐​sum payment made to each adult citizen (dotted gray line). The carbon tax is imposed in 2015 and revenue neutrality is maintained throughout the scenario. In only one of these scenarios (and only after a few years) does the economic dividend result.

Figure 3. Difference in GDP Relative to Baseline from Revenue‐​Neutral $30 per Ton Carbon Dioxide (CO2) Tax

Source: Adapted from Jared C. Carbone et al., “Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts,” Resources for the Future, August 2013, Figure 1.

Note: GDP = gross domestic product.

The results of the RFF modeling may surprise readers who are familiar with the pro‐​growth claims about a carbon tax swap deal. Further, to the extent that a U.S. carbon tax would not be fully revenue neutral, the reality would be much worse than is depicted in the theoretically ideal Figure 3. It should be stressed that RFF is a respected organization in this arena, and it’s fair to say that most of its scholars would endorse a (suitably designed) U.S. carbon tax.

RFF’s modeling results are quite consistent with the academic literature. In a 2013 review article in Energy Economics, Stanford economist Lawrence Goulder—one of the pioneers in the field of environmental tax analysis—surveyed the literature and concluded:

In short, Goulder is saying that the bulk of research finds that even a theoretically ideal revenue‐​neutral carbon tax would probably not promote conventional economic growth (in addition to curbing emissions). The only way such a result is even theoretically possible is if the original tax code is particularly distorted in a certain dimension (such as taxing capital much more than labor) and if the carbon tax revenues are then devoted to reducing that distortion.

It is important for libertarian and conservative readers concerned about the economic effects of a new carbon tax to understand what Goulder means when he explains that the “narrow base of green taxes constitutes an inherent efficiency handicap.”⁴⁴ If we put aside for the moment concern about climate change, then generally speaking it would be foolish (on standard tax efficiency grounds) to raise revenue by taxing CO2 emissions rather than taxing labor or capital more broadly. The tax on CO2 would have a much narrower base, meaning that it would take a higher rate of taxation to yield a given dollar amount of revenue. Because standard analyses suggest that the economic harms of taxes (the deadweight losses) are proportional to the square of the tax rate, those considerations mean that even a dollar‐​for‐​dollar tax swap would nonetheless increase the economic drag of the overall tax code.⁴⁵

The technical phenomenon in the literature driving such results is the tax interaction effect, in which a new green tax (such as a carbon tax) interacts with the preexisting, distortionary taxes on labor and capital and makes them more damaging. Note that the carbon tax raises consumer prices and effectively reduces the after‐​tax earnings of labor and capital, acting as its own (implicit) tax on labor and capital, but with the difference that it is concentrated in particular areas rather than spread uniformly over all labor and capital. This distortion is the intuition behind the results found in the literature: as a general rule, even a dollar‐​for‐​dollar carbon tax swap deal will hurt the conventional economy.

Thus we see that the typical pro‐​growth case for the carbon tax gets things exactly backward: generally speaking, to the extent that the U.S. tax code is already filled with distortions, the case for implementing a carbon tax of a particular magnitude is actually weaker, not stronger, even if we assume full revenue‐​recycling by reduction of those preexisting, distortionary taxes.

To illustrate those nuances, as well as to convey the magnitude of their importance, Table 1 shows the estimates from a numerical simulation of the economic effects of various carbon taxes. This table comes from a pioneering 1996 paper in the American Economic Review by Bovenberg and Goulder.⁴⁶

Table 1. Textbook Carbon Tax versus Optimal Carbon Tax, with Presence of Prior U.S. Federal Tax Code Distortions

Source: Adapted from 1994 simulation in A. Lans Bovenberg and Lawrence H. Goulder, “Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses,” American Economic Review 86 (1996): 985‑1000. Table 1 is adapted from Table 2 (in the appendix) from the 1994 NBER Working Paper No. 4897 version of the article, http://​www​.nber​.org/​p​a​p​e​r​s​/​w4897. Note that our table uses their “realistic benchmark” personal income tax rate reduction and lump‐​sum scenarios.

Much of the contemporary U.S. policy debate on climate change restricts its attention to the first two columns in Table 1. Many analysts assume that, if the SCC is, say, $25 per ton, then the federal government should at least put a price on carbon (such as a carbon tax) at a level of $25 per ton, to reflect the negative externality. Then, to the extent that consideration is given to preexisting taxes, which are themselves distortionary, most analysts—particularly those urging libertarian or conservative readers to embrace a carbon tax—think it is self‐​evident that full revenue recycling can only enhance the case for a carbon tax, indeed perhaps making it sensible even if one neglects the environmental externality. Yet the third and fourth columns in Table 1 show that such common reasoning is backward,⁴⁷ at least in typical models in this literature. Generally speaking, the presence of distortionary taxes reduces the case for a new carbon tax, meaning that (considering all economic and environmental aspects) the optimal carbon tax will end up being lower than the SCC.⁴⁸

The effect of the tax interaction effect on policy design can be enormous. For example, as Table 1 indicates, in the case of a $50 SCC, if the carbon tax receipts are to be returned in lump‐​sum fashion, then the optimal carbon tax—with all feedback effects on the tax system taken into account—is zero. The outcome reflects the fact that introducing even a very modest carbon tax (such as a mere $1 per ton) would exacerbate the deadweight losses of the preexisting taxes so much that the marginal economic costs swamp the stipulated $50 per ton environmental benefits of the carbon tax, meaning that it would be better—all things considered—not to levy even the modest carbon tax in the first place. The policy wonks advocating a carbon tax almost never consider that type of possibility in their discussions with libertarians and conservatives.

It is true that, given a carbon tax, it is better to use the receipts to reduce tax rates rather than spend the money or return it in a lump sum to citizens. That is why Table 1 shows that, in the case of a $50 social cost of carbon, the optimal carbon tax with personal income tax rate reduction is $27. Thus, putting the U.S. policy debate in terms of Table 1, the analysts advocating a carbon tax have been focusing on the fact that $27 is more than $0 (i.e., it’s better to use carbon tax receipts to fund tax rate reductions than for other uses). But they generally overlook the fact that $27 is less than $50, meaning that carbon taxes make sense only if there are high environmental damages from emissions, and even in that case—and even with a fully revenue‐​neutral tax rate swap—we would still implement only a carbon tax much lower than the assumed SCC.

To be sure, the RFF analysis still favored a carbon tax with full revenue recycling through other tax rate reductions as the best policy. But, if forced to choose between a direct kilowatt‐​hour emissions mandate on the power sector versus a politically realistic cap‐​and‐​trade program containing substantial amounts of free allowances to ease the burdens on certain special interests, the RFF study actually rejected the cap‐​and‐​trade market solution as having economic costs 200 percent higher than the command‐​and‐​control mandates. Such an outcome doesn’t occur in a simplistic textbook analysis that disregards the existing tax code, but in the real world all market solutions—whether cap‐​and‐​trade or a carbon tax—raise energy prices and thus render preexisting taxes much more destructive.

Other examples could be cited of proponents claiming that British Columbia is one of the prime exhibits that shows that a revenue‐​neutral carbon tax can reduce emissions without impairing economic growth.⁶⁸ Yet we challenge that claim.

One popular 2012 econometric analysis of the BC episode concluded that its carbon tax reduced emissions from gasoline about five times as much as would be expected from comparable, market‐​induced increases in gasoline prices.⁶⁹ The authors hypothesize that the reduced emissions resulted because BC residents are willing to cut back on driving in an effort to mitigate climate change as long as their fellow BC residents can’t free‐​ride off their sacrifices. The problem with that notion is that it would indicate very poor reasoning on the part of BC residents: the rest of the world, which is not subject to BC’s carbon tax, can still free‐​ride off any BC cutbacks.

A much more plausible explanation for the econometric results is that BC residents are (at least partially) buying gasoline in other jurisdictions. Note that a market‐​induced rise in pump prices in British Columbia would not lead to that effect because, presumably, gas prices in neighboring Alberta or Washington State would also be affected by a change in world supply and demand. However, when BC residents see their gas prices rise because of the BC carbon tax, then (other things being equal) we would expect gasoline in other jurisdictions to become relatively more attractive.

Although pro–carbon tax writers have tried to downplay the significance of that possibility, the data do indicate a sharp increase in cross‐​border traffic between British Columbia and Washington State after the BC carbon tax was implemented. Figure 4 shows various trends in cross‐​border vehicle traffic expressed as an index relative to year 2007 levels.

Figure 4. Select U.S.–Canadian Vehicle Border Crossings, Annual, 1998–2014

Source: Data are from Statistics Canada, Table 427‑0002, “Number of Vehicles Travelling between Canada and the United States,” http://​www5​.stat​can​.gc​.ca/​c​a​n​s​i​m​/​a​2​6​?​l​a​n​g​=​e​n​g​&​i​d​=​4​2​70002.

As Figure 4 indicates, a pronounced increase in Canadian vehicle crossings of the BC–Washington State border occurred after the carbon tax was introduced in July 2008. The surge cannot be due to, say, changes in the Canadian–U.S. dollar exchange rate because we don’t see nearly the same rise in Canadian vehicles returning to either Canada as a whole or Ontario in particular. Vehicles returning to British Columbia were up 136 percent in 2013 relative to 2007 levels, whereas in Ontario they were up only 22 percent. The actual number of returning BC vehicles was 3.2 million in 2007 and 7.6 million in 2013, compared with a total BC population of about 4.6 million in 2013.⁷⁰ Furthermore, the surge can’t be due to changes in border flexibility, as some have suggested, because we don’t see nearly as much of a relative surge in U.S. traffic at the BC border relative to other checkpoints.

Another significant point is that, even if not a statistical artifact, the apparently large reduction in BC emissions proved to be temporary. The studies trumpeting the potency of BC’s carbon tax went only through 2012 data. However, officially reported BC gasoline sales increased sharply in 2013 and 2014, such that as of 2014 annual per capita BC gasoline sales were down only 2 percent compared with 2007, only a percentage point lower than the rest of Canada.⁷¹ See Figure 5. On this criterion it seems British Columbia’s carbon tax had a very weak long‐​term effect on gasoline consumption, even if we ignore the significant leakage problem.

Figure 5. Per capita Official Gasoline Sales in British Columbia vs. Rest of Canada, Annual, 2005–14

Source: Data are from Statistics Canada, Table 134‑0004, “Supply and Disposition of Refined Petroleum Products,” http://​www5​.stat​can​.gc​.ca/​c​a​n​s​i​m​/​a​2​6​?​l​a​n​g​=​e​n​g​&​i​d​=​1​3​40004.

The claim that British Columbia’s carbon tax did not harm the conventional economy—because BC growth has matched overall Canadian growth since 2008—ignores the fact that the BC economy was outperforming the rest of Canada before the carbon tax. Specifically, from 2003 to 2008, BC real output grew by a cumulative 18.6 percent, whereas Canadian real GDP grew by only 12.7 percent. In contrast, from 2008 to 2013 (the latest annual figure available), BC output grew by 8.0 percent, whereas Canadian output grew by 7.7 percent.⁷²

We see a similar pattern in the labor market. In the five years before introduction of the BC carbon tax, the average unemployment rate in British Columbia was 5.6 percent, compared with a Canadian average of 6.6 percent. But, in the five years after the BC carbon tax began, the average unemployment rate in British Columbia was 7.1 percent compared to 7.6 percent in Canada overall.⁷³ Thus the labor market advantage of British Columbia versus Canada was cut in half if we look at the five‐​year periods before and after introduction of the BC carbon tax. See Figure 6.⁷⁴

Figure 6. Unemployment and Real Growth Rates, Annual Averages, British Columbia vs. Canada, 2003–13

Source: Unemployment data are from Statistics Canada, Table 282–008, “Labour Force Survey Estimates (LFS), by North American Industry Classification System (NAICS), Sex and Age Group,” http://​www5​.stat​can​.gc​.ca/​c​a​n​s​i​m​/​a​2​6​?​l​a​n​g​=​e​n​g​&​i​d​=​2​8​20008; economic data are from Statistics Canada, Table 384‑0038, “Gross Domestic Product, Expenditure‐​based, Provincial and Territorial,” http://​www5​.stat​can​.gc​.ca/​c​a​n​s​i​m​/​a​2​6​?​l​a​n​g​=​e​n​g​&​i​d​=​3​8​40038.

As a final twist, we note that BC authorities report that they actually (and apparently unintentionally) provided net tax cuts in conjunction with the revenue‐​neutral carbon tax, presumably because they did not anticipate the sharp fall in gasoline sales in the region.⁷⁵ In other words, they gave too‐​generous tax cuts because they assumed the carbon tax receipts would be higher than those ultimately realized. The BC tax cuts took the form of rate reductions and lump‐​sum payments (the latter directed to low‐​income groups that would be especially harmed by rising energy prices). Proponents note that the BC carbon tax swap has yielded the lowest personal income tax rates in Canada, but that describes the average effective rates. What really matters is the marginal tax rate, which indicates how much a taxpayer is assessed for an additional unit of labor or income. In 2014 British Columbia had six income tax brackets, ranging up to 16.8 percent, whereas neighboring Alberta had a flat income tax of 10 percent.⁷⁶ The notion that British Columbia is now an economic powerhouse because of its carbon tax and offsetting adjustments to the tax code is far from reality.

In summary, when we look at British Columbia—the hands‐​down best real‐​world example of a carbon tax swap, according to proponents—we find that even the official figures show that British Columbia has had only a modest reduction in gasoline consumption relative to the rest of Canada, and those official figures appear to show significant leakage into other jurisdictions. That may have led authorities to provide larger tax cuts than they had intended. Furthermore, British Columbia’s offsetting tax cuts were not designed solely to encourage labor and economic growth because they included lump‐​sum transfers to low‐​income groups. Indeed, in practice the evidence suggests that, even with the associated net tax cuts, BC unemployment and real economic growth rates suffered after the carbon tax was enacted. Inasmuch as any U.S. carbon tax will not be revenue neutral—let alone be phased in with net tax cuts—the BC example leads us to expect modest changes in gas consumption in exchange for a weaker economy.

NOTES

The authors gratefully acknowledge David R. Henderson and Jeffrey Miron for comments on an early draft, and Jim Manzi and Philip Cross for providing references.

1. The original social cost of carbon estimates from the Obama administration were published in Interagency Working Group on Social Cost of Carbon, “Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis—Under Executive Order 12866,” February 2010, http://www.epa.gov/oms/climate/regulations/scc-tsd.pdf. A major update to the estimates was issued in May 2013, “Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866,” https://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf. As of this writing, the latest estimates were released on July 2015: “Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866,” https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf.

2. See the Office of Management and Budget Circular A-4 (September 17, 2003) regarding regulatory analysis.

3. Interagency Working Group on Social Cost of Carbon, “Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis—Under Executive Order 12866,” p. 11.

4. T. Havranek et al., “Selective Reporting and the Social Cost of Carbon,” Energy Economics (2015), doi:10.1016/j.eneco.2015.08.009.

5. Interagency Working Group, “Technical Support Document,” May 2013 revision, https://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf.

6. For example, N. Lewis and J. A. Curry, “The Implications for Climate Sensitivity of AR5 Forcing and Heat Uptake Estimates,” Climate Dynamics 45 (2014): 1009–23, doi:10.1007/s00382-014‑2342-y. See also A. Otto et al., “Energy Budget Constraints on Climate Response,” Nature Geoscience 6 (2013): 415–16.

7. For example, A. Schmittner et al., “Climate Sensitivity Estimated from Temperature Reconstructions of the Last Glacial Maximum,” Science 334 (2011): 1385–88, doi:10.1126/science.1203513; J. C. Hargreaves et al., “Can the Last Glacial Maximum Constrain Climate Sensitivity?” Geophysical Research Letters 39 (2012): 24702, doi:10.1029/2012GL053872.

8. J. D. Annan and J. C. Hargreaves, “On the Generation and Interpretation of Probabilistic Estimates of Climate Sensitivity,” Climatic Change 104 (2011): 324–436.

9. For example, N. Lewis, “Does ‘Inhomogeneous Forcing and Transient Climate Sensitivity’ by Drew Shindell Make Sense?” Climate Audit, March 10, 2014, http://climateaudit.org/2014/03/10/does-inhomogeneous-forcing-and-transient-climate-sensitivity-by-drew-shindell-make-sense/; T. Masters, “On Forcing Enhancement, Efficacy, and Kummer and Dessler,” Troy’s Scratchpad, May 9, 2014, https://troyca.wordpress.com/2014/05/09/on-forcing-enhancement-efficacy-and-kummer-and-dessler-2014/; N. Lewis, “Marotzke and Forster’s Circular Attribution of CMIP5 Intermodel Warming Differences,” Climate Audit, February 5, 2015, https://climateaudit.org/2015/02/05/marotzke-and-forsters-circular-attribution-of-cmip5-intermodel-warming-differences/.

10. P. J. Michaels and P. C. Knappenberger, “‘Worse than We Thought’ Rears Its Ugly Head Again,” Cato at Liberty, January 6, 2013, http://www.cato.org/blog/worse-we-thought-rears-ugly-head-again.

11. G. H. Roe and M. B. Baker, “Why is Climate Sensitivity So Unpredictable?” Science 318 (2007): 629–32.

12. “Summary for Policymakers,” Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, eds. T. F. Stocker et al. (Cambridge, UK, and New York: Cambridge University Press, 2013), p. 16, http://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_SPM_FINAL.pdf.

13. N. Lewis and M. Crok, “A Sensitive Matter: How the IPCC Buried Evidence Showing Good News about Global Warming,” Global Warming Policy Foundation, 2014, http://www.thegwpf.org/content/uploads/2014/02/A-Sensitive-Matter-Foreword-inc.pdf.

14. A. Otto et al., “Energy Budget Constraints on Climate Response.”

15. P. J. Michaels and P. C. Knappenberger, Lukewarming: The New Climate Science That Changes Everything (Washington: Cato Institute, 2015); B. Stevens, “Rethinking the Lower Bound on Aerosol Radiative Forcing,” Journal of Climate 28 (2015): 4794–4819; N. Lewis, “Implications of Lower Aerosol Forcing for Climate Sensitivity,” Climate Etc., March 19, 2015, https://judithcurry.com/2015/03/19/implications-of-lower-aerosol-forcing-for-climate-sensitivity/.

16. Robert Pindyck, “Climate Change Policy: What Do the Models Tell Us?” Journal of Economic Literature 51 (2013): 5, http://web.mit.edu/rpindyck/www/Papers/Climate-Change-Policy-What-Do-the-Models-Tell-Us.pdf.

17. Interagency Working Group, “Technical Support Document,” July 2015 revision, https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf.

18. For a comprehensive discussion of the SCC and discount rates, see the Institute for Energy Research’s “Comment on the Technical Support Document,” submitted to the Office of Management and Budget in February 2014, http://instituteforenergyresearch.org/wp-content/uploads/2014/02/IER-Comment-on-SCC.pdf.

19. For example, Interagency Working Group, “Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866,” February 2010, Figure 1A, https://www3.epa.gov/otaq/climate/regulations/scc-tsd.pdf.

20. Some standard references showcasing various perspectives in the discounting literature are Robert C. Lind, ed., Discounting for Time and Risk in Energy Policy (Washington: Resources for the Future, 1982); and Paul R. Portney and John P. Weyant, eds., Discounting and Intergenerational Equity (New York: Resources for the Future, 1999).

21. S. Waldhoff et al., “The Marginal Damage Costs of Different Greenhouse Gases: An Application of FUND,” Economics: The Open‐​Access E‐​Journal, no. 2014–31 (2014), http://www.economics-ejournal.org/economics/journalarticles/2014–31.

22. John Christy, University of Alabama, Huntsville, Testimony before the Committee on Science, Space, and Technology, U.S. House of Representatives, February 2, 2016.

23. It is true that, in the text to this point, we have seriously questioned the accuracy of IAMs such as Nordhaus’s DICE model. However, we are merely illustrating the quantitative significance of “leakage” in terms of the standard models themselves, to show that even on its own merits, the case for a U.S. carbon tax is weaker than the public has been led to believe.

24. William Nordhaus, A Question of Balance: Weighing the Options on Global Warming Policies (New Haven, CT: Yale University Press, 2008), p. 19.

25. The calculator is available at http://www.cato.org/blog/current-wisdom-we-calculate-you-decide-handy-dandy-carbon-tax-temperature-savings-calculator. The estimate relies on a 3°C climate sensitivity assumption.

26. See O. Edenhofer et al., “Technical Summary,” in Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, ed. O. Edenhofer et al. (Cambridge, UK, and New York: Cambridge University Press, 2014), p. 25, http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_technical-summary.pdf.

27. See Intergovernmental Panel on Climate Change, “2014: Summary for Policymakers,” in Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, eds. O. Edenhofer et al. (Cambridge, UK, and New York: Cambridge University Press, 2014), Table SPM.2, p. 15, http://www.ipcc.ch/pdf/assessment-report/ar5/wg3/ipcc_wg3_ar5_summary-for-policymakers.pdf.

28. See Figure 12–40, M. Collins et al., “Long‐​term Climate Change: Projections, Commitments and Irreversibility,” Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, eds. T. F. Stocker et al. (Cambridge, UK: Cambridge University Press, 2013), p. 1100, http://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_Chapter12_FINAL.pdf.

29. See D. J. Arent et al., “Key Economic Sectors and Services, Supplementary Material,” in Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, eds. C. B. Field et al., Table SM10.2 (2014), http://www.ipcc.ch/pdf/assessment-report/ar5/wg2/supplementary/WGIIAR5-Chap10_OLSM.pdf; and “Errata in the Working Group II contribution to the AR5,” http://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5_Errata.pdf.

30. Roberto Roson and Dominique van der Mensbrugghe, “Climate Change and Economic Growth: Impacts and Interactions,” International Journal of Sustainable Economy 4 (2012): 270–85.

31. Martin L. Weitzman, “On Modeling and Interpreting the Economics of Catastrophic Climate Change,” Review of Economics and Statistics 91 (2009): 1–19, http://www.mitpressjournals.org/doi/pdf/10.1162/rest.91.1.1.

32. Ibid.

33. David R. Henderson, “Uncertainty Can Go Both Ways,” Regulation 36 (2013): 50–51, http://object.cato.org/sites/cato.org/files/serials/files/regulation/2013/6/regulation-v36n2-1-5.pdf.

34. William Nordhaus, “An Analysis of the Dismal Theorem,” Cowles Foundation Discussion Paper No. 1686, January 20, 2009.

35. Bob Inglis and Arthur Laffer, “An Emissions Plan Conservatives Could Warm To,” New York Times, December 28, 2008, http://www.nytimes.com/2008/12/28/opinion/28inglis.html.

36. Jerry Taylor, “The Conservative Case for a Carbon Tax,” Niskanen Center, March 23, 2015, p. 2, http://niskanencenter.org/wp-content/uploads/2015/03/The-Conservative-Case-for-a-Carbon-Tax1.pdf.

37. See David Siders, “Jerry Brown Eyes Cap‐​and‐​Trade Money for High‐​Speed Rail,” Sacramento Bee, January 6, 2014, http://blogs.sacbee.com/capitolalertlatest/2014/01/jerry-brown-eyes-cap-and-trade-money-for-high-speed-rail.html.

38. See “RGGI Benefits,” Regional Greenhouse Gas Initiative website, http://www.rggi.org/rggi_benefits.

39. See John Stang, “Inslee Wants to Fund Transportation with a Carbon Tax,” Crosscut, http://crosscut.com/2014/12/inslee-carbon-tax-fund-transportation-john-stang/.

40. The details of this apparent $695 billion oversight are explained in Robert P. Murphy, “Jerry Taylor Strikes Out (Again) on Carbon Tax,” Institute for Energy Research, http://instituteforenergyresearch.org/analysis/jerry-taylor-strikes-out-again-on-carbon-tax/.

41. See Jerry Taylor, “Should Carbon Tax Revenue Be Used to Retire Debt?” Climate Unplugged, https://niskanencenter.org/blog/should-carbon-tax-revenue-be-used-to-retire-debt/.

42. Jared C. Carbone et al., “Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts,” Resources for the Future, August 2013, http://www.rff.org/RFF/Documents/RFF-Rpt-Carbone.etal.CarbonTaxes.pdf.

43. Lawrence H. Goulder, “Climate Change Policy’s Interactions with the Tax System,” Energy Economics 40 (2013): S3–11, http://web.stanford.edu/~goulder/Papers/Published%20Papers/Climate%20Change%20Policy's%20Interactions%20with%20the%20Tax%20System.pdf.

44. Ibid.

45. A commenter on an early draft of this paper pointed out that the effect of higher tax rates is somewhat mitigated if the object of the new tax has a demand that is more inelastic than for the original scenario. The intuition is that deadweight loss occurs when consumers and producers no longer exploit gains from trade on as many units as before. Nonetheless, because the base is smaller on carbon‐​intensive activities, we are still comparing a higher tax rate on the relatively inelastic activities to a lower tax rate on the relatively elastic ones. In any event, the consensus of the general equilibrium simulations is that carbon taxes do, in fact, hinder conventional growth more than other common taxes do.

46. A. Lans Bovenberg and Lawrence H. Goulder, “Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses,” American Economic Review 86 (1996): 985‑1000.

47. A commenter pointed out that the table excludes the analysis of recycling the carbon tax receipts through tax rate reductions on capital. This is true, but the point we are making with the table is that the intuition of some pro–carbon tax writers is simply wrong.

48. Bovenberg and Goulder, in “Optimal Environmental Taxation in the Presence of Other Taxes,” explicitly model changes in the deadweight losses from the pre‐​existing tax code, to see the effect on optimal carbon taxes. In the case of a stipulated $75 per ton social cost of carbon, our table in the text shows the result that a revenue‐​neutral personal income tax (PIT) tax swap implies an optimal $48 per ton carbon tax. This result (we recall) was calibrated to the PIT and other tax rates circa the early 1990s. But Bovenberg and Goulder show in Table 3 of their NBER working paper that, if marginal PIT rates had in fact been 50 percent higher, then the new optimal carbon tax—with full PIT revenue recycling—would drop from $48 to $34 per ton. To repeat, this example shows that the reasoning of many pro–carbon tax analysts is backward: the more distortionary the U.S. tax code is originally, the fewer net benefits that flow from introducing a revenue‐​neutral carbon tax.

49. Taylor, “The Conservative Case for a Carbon Tax,” p. 2.

50. William Foster Lloyd, “Two Lectures on the Checks to Population,” Oxford University, United Kingdom, 1833. See also Garrett Hardin, “The Tragedy of the Commons,” Science 162 (1968): 1243–48.

51. David Roberts, “A Libertarian Makes the Case for a Carbon Tax,” Vox, May 13, 2015, http://www.vox.com/2015/5/13/8594727/conservative-carbon-tax.

52. Ibid.

53. Clean Energy Canada, “How to Adopt a Winning Carbon Price,” Centre for Dialogue at Simon Fraser University, Vancouver, British Columbia, http://cleanenergycanada.org/work/adopt-winning-carbon-price/.

54. David Roberts, “What We Can Learn from British Columbia’s Carbon Tax,” Grist, February 23, 2015, http://grist.org/climate-energy/what-we-can-learn-from-british-columbias-carbon-tax/.

55. Ian Parry and Roberton C. Williams III, “Is a Carbon Tax the Only Good Climate Policy? Options to Cut CO2 Emissions,” Resources 176 (Fall 2010), http://www.rff.org/Publications/Resources/Pages/Is-a-Carbon-Tax-the-Only-Good-Climate-Policy-176.aspx.

56. Information on worldwide carbon pricing programs taken from Kristin Eberhard, “All the World’s Carbon Pricing Systems in One Animated Map,” Sightline Daily, November 17, 2014, http://daily.sightline.org/2014/11/17/all-the-worlds-carbon-pricing-systems-in-one-animated-map/.

57. Rob Taylor and Rhiannon Hoyle, “Australia Becomes First Developed Nation to Repeal Carbon Tax,” Wall Street Journal, July 17, 2014, http://www.wsj.com/articles/australia-repeals-carbon-tax-1405560964.

58. For a list of Alex Robson’s publications, see the Griffith University website, http://www.griffith.edu.au/business-government/griffith-business-school/departments/department-accounting-finance-economics/staff/dr-alex-robson.

59. Alex Robson, “Australia’s Carbon Tax: An Economic Evaluation,” Institute for Energy Research, September 2013, http://instituteforenergyresearch.org/wp-content/uploads/2013/09/IER_AustraliaCarbonTaxStudy.pdf.

60. Ibid., p. 39.

61. See British Columbia Ministry of Finance, “Carbon Tax,” http://www.fin.gov.bc.ca/tbs/tp/climate/carbon_tax.htm.

62. See British Columbia Ministry of Finance, “Tax Rates on Fuels: Motor Fuel Tax Act and Carbon Tax Act,” Bulletin MFT-CT 005, http://www.sbr.gov.bc.ca/documents_library/bulletins/mft-ct_005.pdf.

63. See British Columbia Ministry of Finance, “Myths and Facts about the Carbon Tax,” http://www.fin.gov.bc.ca/tbs/tp/climate/A6.htm.

64. For example, the latest British Columbia Budget and Fiscal Plan (2015/16–2017/18) shows on Table 1 (p. 60) its “Revenue Neutral Carbon Tax Report” for the 2013/14–2014/15 fiscal years, detailing the revenues collected and the offsetting tax cuts provided, http://bcbudget.gov.bc.ca/2015/bfp/2015_Budget_and_Fiscal_Plan.pdf.

65. For a critical discussion of Bauman’s (with Grady Klein) The Cartoon Introduction to Climate Change, see Bryan Caplan’s May 2014 EconLog post, http://econlog.econlib.org/archives/2014/05/the_cartoon_int.html.

66. For example, Shi‐​Ling Hsu, “A Carbon for Corporate Tax Swap,” Climate Unplugged, January 28, 2015, https://niskanencenter.org/blog/a-carbon-for-corporate-tax-swap/.

67. Yoram Bauman and Shi‐​Ling Hsu, “The Most Sensible Tax of All,” New York Times, July 4, 2012, http://www.nytimes.com/2012/07/05/opinion/a-carbon-tax-sensible-for-all.html.

68. For example, Sustainable Prosperity, “British Columbia’s Carbon Tax Shift: The First Four Years,” Research Report, June 2012, http://www.sustainableprosperity.ca/sites/default/files/publications/files/British%20Columbia's%20Carbon%20Tax%20Shift.pdf; and “British Columbia’s Carbon Tax: The Evidence Mounts,” The Economist blog post, July 31, 2014, http://www.economist.com/blogs/americasview/2014/07/british-columbias-carbon-tax.

69. Nicholas Rivers and Brandon Schaufele, “Salience of Carbon Taxes in the Gasoline Market,” SSRN Working Paper, Social Science Research Network, October 22, 2014, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2131468.

70. Some have argued that the cross‐​border statistics do not affect the general lessons of the BC carbon tax episode. For example, Andy Skuce, “The Effect of Cross‐​Border Shopping on BC Fuel Consumption Estimates,” Critical Angle, August 18, 2013, https://critical-angle.net/2013/08/18/the-effect-of-cross-border-shopping-on-bc-fuel-consumption-estimates/.

71. Calculations of British Columbia and rest‐​of‐​Canada gasoline sales are based on Statistics Canada, “Supply and Disposition of Refined Petroleum Products,” Table 134‑0004, http://​www5​.stat​can​.gc​.ca/​c​a​n​s​i​m​/​p​i​c​k​-​c​h​o​i​s​i​r​?​l​a​n​g​=​e​n​g​&​p​2​=​3​3​&​i​d​=​1​3​40004. Population figures are from Statistics Canada, “Estimates of Population, by Age Group and Sex for July 1, Canada, Provinces and Territories, Annual (persons unless otherwise noted), Table 051‑0001, http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=0510001.

72. Percentages based on chained 2007 Canadian dollars as reported by Statistics Canada.

73. Unemployment data are from Statistics Canada, Table 282‑0087, “Labour Force Survey Estimates (LFS), by Sex and Age Group, Seasonally Adjusted and Unadjusted Monthly (persons unless otherwise noted),” http://www5.statcan.gc.ca/cansim/a26?id=2820087. The averages are based on the monthly data (i.e., July 2003 through July 2008, and July 2008 through July 2013).

74. To be sure, if one adjusts the period of comparison, this conclusion can change. For example, if one looks at the seven years before and following the July 2008 introduction of the BC carbon tax, then the difference between average unemployment rates in British Columbia versus Canada differs only by a 10th of a percentage point (and in the other direction).

75. For their claim that (to date) the BC authorities had provided at least $300 million in excess tax cuts compared with the new revenues collected from the carbon tax, see Sustainable Prosperity, “British Columbia’s Carbon Tax Shift,” http://www.sustainableprosperity.ca/sites/default/files/publications/files/British%20Columbia's%20Carbon%20Tax%20Shift.pdf.

76. For provincial income tax rates, see Tax​Tips​.ca, “Current Personal Income Tax Rates,” http://www.taxtips.ca/marginaltaxrates.htm.