Many of the Democrats running for President in 2020 support the Green New Deal that was introduced by Representative Alexandra Ocasio-Cortez of New York and Senator Markey of Massachusetts. The Green New Deal, however, would require a $10 tax increase on a single gallon of gas, according to a study by the CO2 Coalition. Key to the Green New Deal is the goal of eliminating gasoline-powered vehicles in favor of electric vehicles. But in order to make electric cars desirable to consumers gasoline prices would have to increase to $13 per gallon. Such a tax would undoubtedly harm consumers and the U.S. economy.
CO2 Coalition Study
The CO2 Coalition study entitled “The Social Cost of Carbon and Carbon Taxes” examines the social cost of carbon (SCC), which is an estimate of the discounted future costs to the world economy due to the atmospheric warming caused by a metric ton of carbon dioxide emissions, and the level of carbon taxes needed to encourage a major change in technology. To make decisions in the energy sector, the Obama administration established its own social cost of carbon. The Obama administration’s decision to look at costs to the world economy was contrary to official U.S. policy at the time because those estimates were supposed to be made only on the basis of the U.S. economy. This deviation allowed a much higher predicted cost of carbon than if they had followed protocol. The SCC used by the Obama administration was $42 per metric ton, while the SCC used by the Trump administration in regulatory rulemaking has been below $10.
Carbon dioxide is a benign gas and is the byproduct of the conversion of fossil fuels into energy. There are many natural sources of carbon dioxide, which account for about 96 percent of annual contributions to the atmosphere. A gasoline-powered car emits about a metric ton of carbon dioxide every 2,500 miles. The SCC is often suggested as the logical starting point for a “carbon tax” to encourage the use of alternative sources of energy, such as transitioning from gasoline-powered vehicles to electric vehicles.
The CO2 Coalition, as well as others, found that the government’s SCC is so sensitive to input assumptions that small and reasonable variations can produce almost any carbon tax. As a result, it is not a suitable tool for guiding public policy, including taxes on energy.
The Cost of Transitioning to Electric Vehicles
The authors of the study find that a carbon tax of about $1,000 per metric ton of carbon dioxide or roughly $10 per gallon of gasoline would be needed for electric cars to compete with conventional ICE vehicles based on the full cost of ownership and operation of the vehicle. They estimate that it costs about $2,700 more per year to use an electric car instead of a conventional car, which would save about 2,700 kilograms of carbon dioxide. As a result, each metric ton of carbon dioxide not emitted costs about $1,000.
A $10 carbon tax on gasoline added to today‘s gasoline price of about $3 per gallon would make gasoline cost about $13 per gallon at the pump. Note that that price is two to three times what Europeans pay for petroleum-based transportation fuels, which on average total $5 to $6 per gallon for gasoline and $4 to $5 per gallon for diesel. Europeans typically drive somewhat smaller gasoline and diesel-powered cars than Americans.
The Cost of Transitioning Electric Generation to Renewables
The authors estimated the carbon tax needed to replace natural gas generation with wind or solar power. Assuming that electricity generated from natural gas costs about 4 cents per kilowatt hour, adding a $40 tax on carbon dioxide would increase the cost of natural gas generation by about 25 percent. A carbon tax of $40 per metric ton probably would reduce energy consumption slightly at the margin, but is nowhere near high enough to bring about a significant substitution of renewable fuels. To compete with natural gas for power generation, the authors find that onshore wind turbines would need a tax of around $200 per metric ton and solar PV power generation would require a tax of over $500 per metric ton.
The Green New Deal would cripple the U.S. economy by requiring carbon taxes ranging from $200 to $1000 per metric ton to spur replacement of current technologies in the transportation and electric generating sectors. If the United States were to implement carbon taxes of this nature, Americans would be devastated financially. And, given that the United States emits about 15 percent of global carbon dioxide emissions compared to China which emits 28 percent of the world total, U.S. reductions would have little impact on global atmospheric concentrations. According to China’s commitment to the Paris Climate agreement, the country will not begin to reduce carbon dioxide emissions until after the year 2030.
Most Americans would find $13 per gallon gasoline unacceptable. The impacts on households and businesses of all kinds would be enormous. A quadrupling of gasoline prices would plunge the U.S. economy into a deep recession. Policymakers should understand the consequences of their proposals.