Back to top

Carbon Taxes: The Most Efficient Way to Reduce Emissions


Published: August 29, 2018

A revenue neutral carbon tax would automatically encourage consumers and producers to shift toward energy sources that emit less carbon. Carbon taxes are economically efficient because they make people pay for the costs they create. And a revenue neutral carbon tax would keep the government from using new revenue to subsidize other programs.

Discussion Questions

  1. How much revenue might a carbon tax raise?
  2. How could a carbon tax affect the economy, employment, other taxes, and the deficit?
  3. Could a U.S. carbon tax affect global carbon emissions?

Additional Resources

  • Read “Why We Support a Revenue-Neutral Carbon Tax” by George P. Shultz, Gary S. Becker, available here
  • Read why enacting a carbon tax would free up private firms to find the most efficient ways to cut emissions in “A Conservative Answer to Climate Change” by George P. Shultz and James A. Baker III, available here.
  • Read “There Is One Climate Solution That’s Best For The Environment – And For Business” by George P. Shultz and Lawrence H. Summers, available here.
  • Watch as George P. Shultz, James A. Baker III, and Henry Paulson discuss “Is There Deal Space for Carbon Pricing In 2017?” Available here.
  • Listen as George Shultz joins The World Today to explain why he supports a carbon tax, available here.
  • John Cochrane discusses George P. Shultz and James A. Baker III oped "A Conservative Answer to Climate Change." Available here
  • Read “Let the Carbon-Dividends Debate Begin” by George P. Shultz and Ted Halstead, available here.
View Transcript

What if we could reduce carbon pollution at a lower cost and with fewer government restrictions than we have now?

Our current strategy is to regulate who, what, or how energy can be used, either through emissions rules that favor politically connected groups or through costly subsidies and mandates that often fail to achieve their goals.

But another, more flexible way is to tax carbon emissions. A carbon tax would automatically encourage consumers and producers to shift toward energy choices that emit less carbon – whatever those options may be – because they would cost less relative to high-carbon options.

Economists call this an efficient solution because those who create costs would pay for them, instead of shifting them onto others.

This carbon tax could be made revenue neutral - and more fair to all income groups - by taking all revenue collected and redistributing it to American taxpayers in the form of an equal annual dividend check.

Most importantly, a revenue neutral carbon tax would reduce carbon emissions at a lower cost than today's arbitrary and complex regulatory limits: Winners and losers wouldn’t depend on being politically connected.

They would be determined by who uses – or saves – the most carbon.