Using a Carbon Tax to Meet US International Climate Pledges

Abstract

The United States recently ratified the Paris Agreement, under the UN Framework Convention on Climate Change (UNFCCC), in which it pledged to reduce greenhouse gas emissions by 26–28 percent, relative to 2005, by 2025. In the absence of policy efforts beyond those currently in place or already proposed by the Obama administration, the United States would likely fall well short of its promises. However, a federal economy-wide carbon tax on US carbon dioxide emissions could significantly contribute to the additional reductions necessary to fulfill our international climate commitments. Using a detailed multisector computable general equilibrium (CGE) model, we predict the carbon price paths that would be necessary to meet the 28 percent emissions target and show the economic costs of such carbon-pricing policies. We then demonstrate how both the price paths and associated costs change if action is delayed.