Economists: It's Time for a Carbon Tax That Pays Dividends

Economists: It's Time for a Carbon Tax That Pays Dividends


Dozens of prominent economists with extensive experience in government service signed a statement in Thursday’s Wall Street Journal calling for a carbon tax.

“Global climate change is a serious problem calling for immediate national action,” the economists said, before defining five broad principles to guide a bipartisan effort to create a new tax on carbon:  

  • A carbon tax is the most cost-effective way to harness “the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
  • The proposed carbon tax should rise every year to encourage large-scale development.
  • The price signal of a steadily rising tax should replace “cumbersome regulations” on carbon.
  • The carbon tax should include a border adjustment to protect U.S. companies and “create an incentive for other nations to adopt similar carbon pricing.”
  • To enhance the “political viability” of such a tax, the revenues collected “should be returned directly to U.S. citizens through equal lump-sum rebates.”

The Journal’s Timothy Puko said that the principles are backed by a group called the Climate Leadership Council, which has proposed an initial tax on U.S. businesses of $40 per ton of carbon emissions. The tax would produce about $200 billion per year, which translates to about $2,000 for a family of four.

One of the signatories, former Fed chair Janet Yellen, said that a “carbon tax is very popular among economists but not very popular among people. Getting a proposal that has some political viability so we can make some progress, I think that’s essential.”

In addition to Yellen, the signatories include former Fed chairs Alan Greenspan, Paul Volcker and Ben Bernanke; former White House advisors N. Gregory Mankiw, Christina Romer, Laura Tyson, Martin Feldstein, Jason Furman and Austan Goolsbee; and Nobel Prize recipients George Akerlof, Angus Deaton, Peter Diamond, Amartya Sen, Robert Shiller and Richard Thaler.