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Research & Commentary: Establishing Carbon-Dioxide Tax after COVID-19 Pandemic a Bad Idea for New York

March 26, 2021

Carbon-Dioxide Taxes Do Little To Reduce Emissions, Act As Regressive Tax

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Companion legislation under consideration in the New York State Legislature would establish a carbon-dioxide tax and create a “carbon dioxide emissions fund” in the Empire State.

The tax would be placed on “carbon-based fuels”, meaning “coal, natural gas, renewable biomass, petroleum products, and any other product that emits carbon dioxide, methane, nitrous oxide, or other greenhouse gases when combusted, and that is used for fuel for the purposes of producing electric energy,” as well as “electric energy produced using a carbon-based fuel,” and “carbon dioxide equivalent,” meaning “a unit of measure denoting the amount of emissions from a greenhouse gas, expressed as the amount of carbon dioxide by weight that produces the same global warming impact.”

The price of the tax would be set by the New York State Department of Environmental Conservation, and would have to “incorporate the social cost of carbon” in its pricing decision. (It should be noted that whether there is a “social cost” to carbon dioxide emissions at all is debatable.)

Included in the carbon dioxide emissions fund, in which 60 percent of the tax revenue raised would be steered toward, would be a significant rebate “to very low to moderate income residents of the state in the form of tax credits in order to offset the cost of the carbon dioxide emissions price.” Other uses of the fund would be to “support the transition to renewable energy and improve climate change adaptation in disadvantaged communities” and “support mass transit to reduce carbon emissions.”

Rebates like the one included in this bill are considered necessary because carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon dioxide tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.

CBO reports the reason for cost discrepancy is “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.

One other substantial problem with the carbon-dioxide tax is that it would produce an insignificant environmental benefit, as Oren Cass, senior fellow at the Manhattan Institute, noted in National Affairs.  “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Cass. “On each of these dimensions, the carbon tax fails.” Considering Washington’s carbon-dioxide emissions represent just 1.2 percent of the U.S. total, and a statistically insignificant 0.02 percent of the global total, a carbon-dioxide tax is completely unjustifiable.

At 14.34 cents per kilowatt hour, New York currently has the sixth-highest retail electricity prices in the continental United States, according to the U.S. Energy Information Administration. The Tax Foundation already ranks New York’s tax climate as the third worst in the country,  and WalletHub lists the average New Yorker’s total energy costs at $282 per month. The high energy prices and burdensome tax climate are primary reasons New York has experienced more than 1 million residents flee the state since 2010. A carbon-dioxide tax would make everything more expensive for working families in New York, who are already pinched by the state’s high costs, leaving them less to spend and save – all without any guaranteed environmental benefits.

Empire State lawmakers should not enact any kind of carbon-dioxide tax, as it would have a minimal effect on carbon-dioxide emissions and would cause considerable economic harm to all New Yorkers, especially low-income Washington families. In the middle of the COVID-19 pandemic, when economic situations for many people and businesses are especially precarious, purposefully raising taxes is extremely foolish and hard-hearted. 

The following documents provide more information about carbon-dioxide taxes, New York’s energy policies, and fossil fuels.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report finds that, collectively, these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

The Deeply Flawed Conservative Case for a Carbon Tax
In this paper published by the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.

The Case Against a U.S. Carbon Tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and consider whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.” 

Economic Outcomes of a U.S. Carbon Tax
This report from the National Association of Manufacturers evaluates the potential impacts carbon taxes whose revenues would be devoted to a combination of debt and tax rate reduction would have on the U.S. economy. The results consider the varied economic effects of fossil-fuel cost increases caused by carbon taxes, as well as the positive economic effects of the assumption that carbon tax revenues would be used to reduce government debt and federal taxes.

The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon-dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. Instead, the paper urges for the data to be considered and applied to the narrative.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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