The U.S. needs to get its finances under control without resorting to the usual fixes of raising taxes and/or cutting spending, which would stymie recovery.  The case for a carbon tax is a compelling one, given our current macroeconomic quandary and our apparent inability to deal with climate change.  Each of these factors alone can make the case persuasively.  When we take them together, the tax becomes even more convincing as a solution to some seemingly insurmountable problems.  A carbon tax has big long-term revenue potential and only small, short-term drawbacks.  A carbon tax avoids the pricing pitfalls of cap-and-trade and moves towards gradually replacing our energy infrastructure over time.  Paradoxically, a carbon tax would be a boon for natural gas.Bush School of Government and Public Servic

Gawande, Kishore

Griffin, James M.

Texas A&M University

The Time for  
A Carbon Tax  
Is Now  
 
JAMES M. GRIFFIN AND KISHORE GAWANDE 
Mosbacher InsƟtute, The Bush School  
VOLUME 1 | ISSUE 2 | 2010 
2010 
The	case	 for	a	carbon	 tax	 is	a	compelling	one,	given	our	
current	 macroeconomic	 quandary	 and	 our	 apparent	
inability	to	deal	with	climate	change.	Each	of	these	factors	
alone	can	make	the	case	persuasively.	When	we	take	them	
together,	 the	 tax	 becomes	 even	 more	 convincing	 as	 a	
solution	to	some	seemingly	insurmountable	problems.		
CASE 1: THE  
MACROECONOMICS  
	
Like	it	or	not,	for	the	
foreseeable	future	tax	
increases	are	a	necessity.	The	
United	States’	2009	federal	
deϐicit	was	$1.4	trillion—
almost	10%	of	GDP	(Con‐
gressional	Budget	Ofϐice).	By	
comparison,	at	about	10%	of	
GDP	the	U.S.	did	better	than	
newsmakers	Greece	(13.6%)	
and	Spain	(11.2%)	but	worse	
than,	for	example,	Portugal,	
France	and	Romania	
(Eurostat,	April	2010).		
	
Even	if	we	assume	that	the	
U.S.	economy	returns	to	
health	with	robust	growth,	
the	long‐term	full	employ‐
ment	structural	deϐicit	was	
estimated	at	$475	billion	
earlier	this	year	(CBO).	While	
WHAT’S THE TAKEAWAY? 
 
The U.S. needs to gets its 
finances under control,  but the 
usual fixes of raising taxes and/
or cuƫng spending will merely 
stymie the recovery 
 
A carbon tax has big long‐term 
revenue potenƟal and only 
small, short‐term drawbacks 
 
A carbon tax avoids the pricing 
piƞalls of cap‐and‐trade and 
moves towards replacing our 
energy infrastructure over Ɵme 
 
Paradoxically, a carbon tax 
would be a boon for natural gas  
2  many	would	like	to	erase	the	structural	
deϐicit	by	slashing	spending,	we	know	from	
past	legislative	behavior	that	once	elected,	
lawmakers	have	little	appetite	for	axing	
special	projects	in	their	own	districts	or	
states.	
	
Living	indeϐinitely	with	massive	deϐicits	is	
not	an	option.	Even	if	the	Chinese	continue	
to	buy	our	debt,	it	is	morally	indefensible	to	
mortgage	our	future.	Most	Tea	Party	
supporters	don’t	seem	to	realize	that	
without	equal	spending	cuts,	the	tax	cuts	
they	crave	will	amount	simply	to	more	
deϐicit	spending	and	higher	future	taxes	to	
be	paid	by	their	children	and	grandchildren.				
	
But	while	tax	increases	coupled	with	
spending	cuts	is	good	long‐term	
macroeconomic	policy,	in	the	fragile	state	of	
the	U.S.	economy	today	these	will	only	
dampen	the	demand	that	can	spur	economic	
recovery.	This	is	our	quandary.	
	
To	minimize	short‐term	macroeconomic	
impacts,	we	need	a	tax	that	commits	to	start	
at	a	low	rate	and	then	to	rise	over	time,	
generating	large	revenues	in	the	future.	This	
policy	would	send	a	credible	message	to	
capital	markets	that	the	U.S.	is	getting	its	
ϐinances	in	order,	and	assure	the	primacy	of	
the	U.S.	dollar	in	world	capital	markets.	
	
But	what	kind	of	tax	can	do	this?	Answer:	A	
carbon	tax	that	begins	at,	say,	$5	per	ton	of	
CO2,	rising	at	a	rate	of	4%	plus	the	rate	of	
inϐlation.	If	inϐlation	averages	3%	per	year,	
over	10	years	tax	rates	double.	Over	20	
years,	they	quadruple	and	over	30	years,	
they	grow	eightfold.	To	get	an	idea	of	the	
revenue	potential,	assume	such	a	carbon	tax	
stabilized	CO2	emissions	at	2007	levels.	In	
the	ϐirst	year	of	the	tax,	revenue	would	be	
$37	billion.	But	in	the	10th,	revenue	would	
be	$74	billion	and	after	20	years,	it	would	be	
$148	billion.	After	30	years,	revenues	could	
reach	$296	billion.	But	the	short‐term	effect	
on	consumers	would	be	minimal,	raising	
gasoline	and	heating	oil	prices	by	5	cents	per	
gallon.	Even	a	$10	per	ton	carbon	tax	would	
have	a	benign	effect	on	the	economy.	
	
 
CASE 2:  THE ENVIRONMENT  
	
As	a	general	rule,	taxes	hinder	economic	
efϐiciency	because	they	raise	the	cost	of	
doing	business	and	reduce	workers’	
incentives	to	work	and	save.	But	linking	a	
tax	to	a	pollutant	can	have	the	beneϐicial	
effects	of	reducing	pollution	by	encouraging	
the	development	of	non‐polluting	
technologies.	Unlike	higher	income	tax	rates,	
a	carbon	tax	would	not	weaken	incentives	to	
work	and	save.		
	
Rather,	by	making	carbon‐intensive	
products	more	expensive,	the	tax	would	
encourage	consumers	to	choose	less	
polluting	goods.	If	some	want	to	keep	buying	
large	amounts	of	carbon‐intensive	products,	
those	people	will	have	to	pay	the	rest	of	us	
for	that	privilege.	So	a	carbon	tax	is	fair	in	
the	sense	that	it	would	apply	to	all	of	us	—	
rich,	poor,	and	middle	class.		
	
Any	justiϐication	for	a	carbon	tax	must	rest	
on	the	science	of	climate	change	and	the	
economics	of	its	impacts	on	GDP	and	quality	
of	life.	There	is	a	huge	literature	on	these	
topics.	Our	reading	of	the	science	of	climate	
	
The	carbon	tax	should	
start	at	a	low	rate	,	
then	rise	signiϔicantly	
over	time	
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change	is	that	the	phenomenon	is	real,	and	
will	loom	ever	larger	as	China	and	India	join	
the	club	of	advanced	nations.	When	most	
economists	assess	the	costs	and	beneϐits	of	
policies	to	cut	carbon	emissions,	they	
conclude	that		draconian	actions	to	quash	
carbon	emissions	are	not	called	for.	We	do	
not	need	to	scrap	the	existing	infrastructure	
of	energy	use	tied	to	fossil	fuels.	But,	as	we	
replace	the	infrastructure	over	time,	we	
must	do	so	with	renewables	and	fuels	that	
leave	lighter	carbon	footprints.	
	
The	beauty	of	a	carbon	tax	that	starts	low	
but	grows	over	time	is	that	it	will	
accomplish	this	energy	transition	with	
minimal	macroeconomic	disruptions.	For	
example,	a	$5	per	ton	carbon	tax	initially	
will	raise	the	cost	of	coal	by	almost	50%.	
Since	coal	plants	enjoy	a	big	cost	advantage	
over	other	fuels,	for	the	most	part	coal	
plants	will	not	be	retired	prematurely.	But	
when	they	are,	cost‐conscious	engineers	will	
weigh	the	projected	future	costs	of	a	new	
coal	plant	against	other	options.		
	
In	30	or	40	years,	we	could	fully	replace	our	
electricity‐generating	infrastructure	with	
low	or	zero	carbon‐emitting	facilities,	a	
move	that	makes	good	business	sense	and	
good	environmental	sense.	If	we	start	the	
carbon	tax	today,	we	begin	to	reconϐigure	
the	energy	infrastructure	of	the	U.S.	
economy.	The	reason	most	economists	
prefer	a	carbon	tax	over	a	cap‐and‐trade	
system	is	that	it	avoids	the	extreme	volatility	
of	carbon	prices.	In	a	cap‐and‐trade	system,	
if	regulators	issue	too	few	allowances,	
carbon	allowance	prices	can	skyrocket	as	
they	did	in	Europe.	We	don’t	need	the	
uncertainty	that	cap‐and‐trade	would	
create;	hopefully,	that	policy	is	off	the	table	
for	good.	But	Washington	does	desperately	
need	both	the	tax	revenues	that	a	carbon		
tax	can	bring,	and	a	sensible	climate	change	
policy.		
	
Now,	let’s	consider	the	potential	objections	
to	a	carbon	tax,	and	offer	a	response:	
	
Objection:	U.S.	producers	of	carbon	intensive	
products	will	be	less	competitive	if	the	same	
tax	is	not	imposed	on	imports	of	manu‐
factured	goods.	Without	carbon	taxes	on	
imports,	manufacturing	may	move	abroad	to	
take	advantage	of	lower	taxes	elsewhere.			
Opponents	of	a	carbon	tax	will	call	for	
import	tariffs	to	level	the	playing	ϐield	for	
U.S.	producers.	But	many	high‐intensive	
carbon	products	that	would	be	affected	have	
already	left	the	U.S.	The	modest	magnitude	
of	the	proposed	tax,	especially	in	the	early	
years,	is	unlikely	to	encumber	the	few	
affected	industries.	Finally,	taxing	imports	
based	on	equivalent	emissions	would	be	an	
administrative	nightmare.	A	future	
Takeaway	can	take	a	closer	look	at	the	trade	
angles	,	but	our	view	is	that	we	should	not	
let	trade	issues	block	a	domestic	carbon	tax.		
…But	replacing	it	over	
time	with	low	or	zero	
carbon	emissions	
makes	good	business	
sense		
3 
We	do	not	need	to	
scrap	the	existing	
infrastructure	of	
energy	use	tied	to	fossil	
fuels...	
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ABOUT THE MOSBACHER INSTITUTE 
	
The Mosbacher InsƟtute was founded in 2009 to honor Robert A. Mosbacher, Secretary of Commerce from 1989‐
1992 and key architect of the North American Free Trade Agreement. Through our three core programs – IntegraƟon 
of Global Markets, Energy in a Global Economy, and Governance and Public Services – our objecƟve is to advance the 
design of policies for tomorrow’s challenges. 
 
Contact: 
Jody Ono, Assistant Director  | The Mosbacher InsƟtute for Trade, Economics, and Public Policy  
 
Bush School of Government and Public Service 
4220 TAMU, Texas A&M University 
College StaƟon, Texas  77843‐4220 
 
Email: mosbacher@bushschool.tamu.edu   
Website: hƩp://bush.tamu.edu/mosbacher 
 
The views expressed here are those of the author(s) and not necessarily those of the Mosbacher InsƟtute, a center for 
independent, nonparƟsan academic and policy research, nor of the Bush School of Government and Public Service. 	
205	pounds	of	CO2,	while	natural	gas	emits	
only	117	pounds.	Thus,	from	coal,	it	takes	
615	pounds	of	CO2	to	produce	what	natural	
gas	produces	with	234	pounds	of	CO2—a	
62%	reduction.	A	carbon	tax	rightly	will	
penalize	coal	much	more		than	it	does	
natural	gas.	Given	our	huge	potential	
domestic	reserves	of	natural	gas	from	shale	
formations,	natural	gas	could	easily	replace	
coal	as	our	dominant	fuel	for	electricity	
generation,	and	at	the	same	time	vastly	cut	
CO2	emissions.	
	
 
James M. Griffin is Director of the Mosbacher 
InsƟtute. He is the author of A Smart Energy 
Policy: An Economist's Rx for Balancing Cheap, 
Clean, and Secure Energy (Yale University 
Press, 2009). Kishore Gawande is Professor in 
InternaƟonal Economics at the Bush School of 
Government and Public Service. He has 
published extensively in the areas of empirical 
poliƟcal economy and trade policy.	
	
Objection:	Congress	will	see	the	carbon	tax	
revenue	as	an	invitation	to	increase	spending	
to	match.		
A	carbon	tax	bill	should	stipulate	that	if	
spending	in	the	previous	year	grew	in	real	
(inϐlation‐adjusted)	terms,	then	the	planned	
increase	of	the	tax	rate	would	not	occur.	In	
sum,	the	annual	increases	in	the	carbon	tax	
of	4%	plus	inϐlation	would	only	happen	if	
spending	were	stabilized	in	real	terms.	This	
may	not	be	enough	to	deter	future	spending	
hikes,	but	it	will	keep	more	carbon	tax	
revenues	from	being	used	to	pay	for	them.	
	
Objection:	A	carbon	tax	may	look	to	some	
like	an	attempt	to	eliminate	the	use	of	all	
fossil	fuels.			
All	fossil	fuels	are	not	created	equal.	A	
carbon	tax	would	likely	be	a	boon	to	the	U.S.	
natural	gas	industry.	Why?	In	a	conventional	
coal	plant,	it	takes	3	million	BTUs	to	
generate	1	million	BTU	of	electricity.	In	
modern	combined‐cycle	natural	gas	
powered	plants,	it	takes	only	2	million	BTUs	
to	generate	the	equivalent	electricity.	
Moreover,	each	million	BTU	of	coal	emits	
4 
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English

The Time for a Carbon Tax is Now

Texas A&amp;M Repository

The Time for  A Carbon Tax  Is Now   JAMES M. GRIFFIN AND KISHORE GAWANDE Mosbacher InsƟtute, The Bush School  VOLUME 1 | ISSUE 2 | 2010 2010 The	case	 for	a	carbon	 tax	 is	a	compelling	one,	given	our	current	 macroeconomic	 quandary	 and	 our	 apparent	inability	to	deal	with	climate	change.	Each	of	these	factors	alone	can	make	the	case	persuasively.	When	we	take	them	together,	 the	 tax	 becomes	 even	 more	 convincing	 as	 a	solution	to	some	seemingly	insurmountable	problems.		CASE 1: THE  MACROECONOMICS  	Like	it	or	not,	for	the	foreseeable	future	tax	increases	are	a	necessity.	The	United	States’	2009	federal	deϐicit	was	$1.4	trillion—almost	10%	of	GDP	(Con‐gressional	Budget	Ofϐice).	By	comparison,	at	about	10%	of	GDP	the	U.S.	did	better	than	newsmakers	Greece	(13.6%)	and	Spain	(11.2%)	but	worse	than,	for	example,	Portugal,	France	and	Romania	(Eurostat,	April	2010).			Even	if	we	assume	that	the	U.S.	economy	returns	to	health	with	robust	growth,	the	long‐term	full	employ‐ment	structural	deϐicit	was	estimated	at	$475	billion	earlier	this	year	(CBO).	While	WHAT’S THE TAKEAWAY?  The U.S. needs to gets its finances under control,  but the usual fixes of raising taxes and/or cuƫng spending will merely stymie the recovery  A carbon tax has big long‐term revenue potenƟal and only small, short‐term drawbacks  A carbon tax avoids the pricing piƞalls of cap‐and‐trade and moves towards replacing our energy infrastructure over Ɵme  Paradoxically, a carbon tax would be a boon for natural gas  2  many	would	like	to	erase	the	structural	deϐicit	by	slashing	spending,	we	know	from	past	legislative	behavior	that	once	elected,	lawmakers	have	little	appetite	for	axing	special	projects	in	their	own	districts	or	states.		Living	indeϐinitely	with	massive	deϐicits	is	not	an	option.	Even	if	the	Chinese	continue	to	buy	our	debt,	it	is	morally	indefensible	to	mortgage	our	future.	Most	Tea	Party	supporters	don’t	seem	to	realize	that	without	equal	spending	cuts,	the	tax	cuts	they	crave	will	amount	simply	to	more	deϐicit	spending	and	higher	future	taxes	to	be	paid	by	their	children	and	grandchildren.					But	while	tax	increases	coupled	with	spending	cuts	is	good	long‐term	macroeconomic	policy,	in	the	fragile	state	of	the	U.S.	economy	today	these	will	only	dampen	the	demand	that	can	spur	economic	recovery.	This	is	our	quandary.		To	minimize	short‐term	macroeconomic	impacts,	we	need	a	tax	that	commits	to	start	at	a	low	rate	and	then	to	rise	over	time,	generating	large	revenues	in	the	future.	This	policy	would	send	a	credible	message	to	capital	markets	that	the	U.S.	is	getting	its	ϐinances	in	order,	and	assure	the	primacy	of	the	U.S.	dollar	in	world	capital	markets.		But	what	kind	of	tax	can	do	this?	Answer:	A	carbon	tax	that	begins	at,	say,	$5	per	ton	of	CO2,	rising	at	a	rate	of	4%	plus	the	rate	of	inϐlation.	If	inϐlation	averages	3%	per	year,	over	10	years	tax	rates	double.	Over	20	years,	they	quadruple	and	over	30	years,	they	grow	eightfold.	To	get	an	idea	of	the	revenue	potential,	assume	such	a	carbon	tax	stabilized	CO2	emissions	at	2007	levels.	In	the	ϐirst	year	of	the	tax,	revenue	would	be	$37	billion.	But	in	the	10th,	revenue	would	be	$74	billion	and	after	20	years,	it	would	be	$148	billion.	After	30	years,	revenues	could	reach	$296	billion.	But	the	short‐term	effect	on	consumers	would	be	minimal,	raising	gasoline	and	heating	oil	prices	by	5	cents	per	gallon.	Even	a	$10	per	ton	carbon	tax	would	have	a	benign	effect	on	the	economy.		 CASE 2:  THE ENVIRONMENT  	As	a	general	rule,	taxes	hinder	economic	efϐiciency	because	they	raise	the	cost	of	doing	business	and	reduce	workers’	incentives	to	work	and	save.	But	linking	a	tax	to	a	pollutant	can	have	the	beneϐicial	effects	of	reducing	pollution	by	encouraging	the	development	of	non‐polluting	technologies.	Unlike	higher	income	tax	rates,	a	carbon	tax	would	not	weaken	incentives	to	work	and	save.			Rather,	by	making	carbon‐intensive	products	more	expensive,	the	tax	would	encourage	consumers	to	choose	less	polluting	goods.	If	some	want	to	keep	buying	large	amounts	of	carbon‐intensive	products,	those	people	will	have	to	pay	the	rest	of	us	for	that	privilege.	So	a	carbon	tax	is	fair	in	the	sense	that	it	would	apply	to	all	of	us	—	rich,	poor,	and	middle	class.			Any	justiϐication	for	a	carbon	tax	must	rest	on	the	science	of	climate	change	and	the	economics	of	its	impacts	on	GDP	and	quality	of	life.	There	is	a	huge	literature	on	these	topics.	Our	reading	of	the	science	of	climate		The	carbon	tax	should	start	at	a	low	rate	,	then	rise	signiϔicantly	over	time	Griﬃn and Gawande | Carbon Tax | VÊ½çÃ 1| IÝÝç 2 | SÖãÃÙ 6, 2010 change	is	that	the	phenomenon	is	real,	and	will	loom	ever	larger	as	China	and	India	join	the	club	of	advanced	nations.	When	most	economists	assess	the	costs	and	beneϐits	of	policies	to	cut	carbon	emissions,	they	conclude	that		draconian	actions	to	quash	carbon	emissions	are	not	called	for.	We	do	not	need	to	scrap	the	existing	infrastructure	of	energy	use	tied	to	fossil	fuels.	But,	as	we	replace	the	infrastructure	over	time,	we	must	do	so	with	renewables	and	fuels	that	leave	lighter	carbon	footprints.		The	beauty	of	a	carbon	tax	that	starts	low	but	grows	over	time	is	that	it	will	accomplish	this	energy	transition	with	minimal	macroeconomic	disruptions.	For	example,	a	$5	per	ton	carbon	tax	initially	will	raise	the	cost	of	coal	by	almost	50%.	Since	coal	plants	enjoy	a	big	cost	advantage	over	other	fuels,	for	the	most	part	coal	plants	will	not	be	retired	prematurely.	But	when	they	are,	cost‐conscious	engineers	will	weigh	the	projected	future	costs	of	a	new	coal	plant	against	other	options.			In	30	or	40	years,	we	could	fully	replace	our	electricity‐generating	infrastructure	with	low	or	zero	carbon‐emitting	facilities,	a	move	that	makes	good	business	sense	and	good	environmental	sense.	If	we	start	the	carbon	tax	today,	we	begin	to	reconϐigure	the	energy	infrastructure	of	the	U.S.	economy.	The	reason	most	economists	prefer	a	carbon	tax	over	a	cap‐and‐trade	system	is	that	it	avoids	the	extreme	volatility	of	carbon	prices.	In	a	cap‐and‐trade	system,	if	regulators	issue	too	few	allowances,	carbon	allowance	prices	can	skyrocket	as	they	did	in	Europe.	We	don’t	need	the	uncertainty	that	cap‐and‐trade	would	create;	hopefully,	that	policy	is	off	the	table	for	good.	But	Washington	does	desperately	need	both	the	tax	revenues	that	a	carbon		tax	can	bring,	and	a	sensible	climate	change	policy.			Now,	let’s	consider	the	potential	objections	to	a	carbon	tax,	and	offer	a	response:		Objection:	U.S.	producers	of	carbon	intensive	products	will	be	less	competitive	if	the	same	tax	is	not	imposed	on	imports	of	manu‐factured	goods.	Without	carbon	taxes	on	imports,	manufacturing	may	move	abroad	to	take	advantage	of	lower	taxes	elsewhere.			Opponents	of	a	carbon	tax	will	call	for	import	tariffs	to	level	the	playing	ϐield	for	U.S.	producers.	But	many	high‐intensive	carbon	products	that	would	be	affected	have	already	left	the	U.S.	The	modest	magnitude	of	the	proposed	tax,	especially	in	the	early	years,	is	unlikely	to	encumber	the	few	affected	industries.	Finally,	taxing	imports	based	on	equivalent	emissions	would	be	an	administrative	nightmare.	A	future	Takeaway	can	take	a	closer	look	at	the	trade	angles	,	but	our	view	is	that	we	should	not	let	trade	issues	block	a	domestic	carbon	tax.		…But	replacing	it	over	time	with	low	or	zero	carbon	emissions	makes	good	business	sense		3 We	do	not	need	to	scrap	the	existing	infrastructure	of	energy	use	tied	to	fossil	fuels...	Griﬃn and Gawande | Carbon Tax | VÊ½çÃ 1| IÝÝç 2 | SÖãÃÙ 6, 2010 ABOUT THE MOSBACHER INSTITUTE 	The Mosbacher InsƟtute was founded in 2009 to honor Robert A. Mosbacher, Secretary of Commerce from 1989‐1992 and key architect of the North American Free Trade Agreement. Through our three core programs – IntegraƟon of Global Markets, Energy in a Global Economy, and Governance and Public Services – our objecƟve is to advance the design of policies for tomorrow’s challenges.  Contact: Jody Ono, Assistant Director  | The Mosbacher InsƟtute for Trade, Economics, and Public Policy   Bush School of Government and Public Service 4220 TAMU, Texas A&M University College StaƟon, Texas  77843‐4220  Email: mosbacher@bushschool.tamu.edu   Website: hƩp://bush.tamu.edu/mosbacher  The views expressed here are those of the author(s) and not necessarily those of the Mosbacher InsƟtute, a center for independent, nonparƟsan academic and policy research, nor of the Bush School of Government and Public Service. 	205	pounds	of	CO2,	while	natural	gas	emits	only	117	pounds.	Thus,	from	coal,	it	takes	615	pounds	of	CO2	to	produce	what	natural	gas	produces	with	234	pounds	of	CO2—a	62%	reduction.	A	carbon	tax	rightly	will	penalize	coal	much	more		than	it	does	natural	gas.	Given	our	huge	potential	domestic	reserves	of	natural	gas	from	shale	formations,	natural	gas	could	easily	replace	coal	as	our	dominant	fuel	for	electricity	generation,	and	at	the	same	time	vastly	cut	CO2	emissions.		 James M. Griﬃn is Director of the Mosbacher InsƟtute. He is the author of A Smart Energy Policy: An Economist's Rx for Balancing Cheap, Clean, and Secure Energy (Yale University Press, 2009). Kishore Gawande is Professor in InternaƟonal Economics at the Bush School of Government and Public Service. He has published extensively in the areas of empirical poliƟcal economy and trade policy.		Objection:	Congress	will	see	the	carbon	tax	revenue	as	an	invitation	to	increase	spending	to	match.		A	carbon	tax	bill	should	stipulate	that	if	spending	in	the	previous	year	grew	in	real	(inϐlation‐adjusted)	terms,	then	the	planned	increase	of	the	tax	rate	would	not	occur.	In	sum,	the	annual	increases	in	the	carbon	tax	of	4%	plus	inϐlation	would	only	happen	if	spending	were	stabilized	in	real	terms.	This	may	not	be	enough	to	deter	future	spending	hikes,	but	it	will	keep	more	carbon	tax	revenues	from	being	used	to	pay	for	them.		Objection:	A	carbon	tax	may	look	to	some	like	an	attempt	to	eliminate	the	use	of	all	fossil	fuels.			All	fossil	fuels	are	not	created	equal.	A	carbon	tax	would	likely	be	a	boon	to	the	U.S.	natural	gas	industry.	Why?	In	a	conventional	coal	plant,	it	takes	3	million	BTUs	to	generate	1	million	BTU	of	electricity.	In	modern	combined‐cycle	natural	gas	powered	plants,	it	takes	only	2	million	BTUs	to	generate	the	equivalent	electricity.	Moreover,	each	million	BTU	of	coal	emits	4 Griﬃn and Gawande | Carbon Tax | VÊ½çÃ 1| IÝÝç 2 | SÖãÃÙ 6, 2010 

https://oaktrust.library.tamu.edu/bitstream/1969.1/153186/1/TakeAway-Vol1%20Iss2.pdf

The Time for a Carbon Tax is Now

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The Time for a Carbon Tax is Now

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Texas A&M University

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