Get Wonky: Can Georgia Tax Carbon?

There’s an idea I’ve been kicking around for a while. It’s not a new idea, and it’s not really mine: a carbon tax. What’s not to love? You save the environment, incentivise investment in clean energy, and provide the backbone for a Universal Basic Income or Citizen’s Dividend.

Briefly: I’ve been informed by reputable people that climate change is something of a trigger issue for me, and I accept that analysis. I tend to view the whole issue as one of Justice, and as such, tend to see it as a battle of the forces of Righteousness. I’ll not go into it here (you’re welcome), but I will say that after a great deal of consideration, I’ve decided that taking action to save the planet is a Moral issue, if not a practical one, which is why I’ve been thinking about a carbon tax.

Gonna taserpunch a crippled man

Before I get too depressed, here’s my all-time favorite Batman panel, in which an enraged Batman is about to taser-punch a crippled luchador.

How Would We Do It?

As the Carbon Tax Center recommends, the best place for us to start should be the US Treasury Department’s “Methodology for Analyzing a Carbon Tax.” That paper has some invaluable details about implementation, and notes, for example, that if we were able to get this whole thing off the ground we’d be able to worry about emissions from livestock (which, surprise, is a huge deal).

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The Office of Tax Analysis’ paper considers, in detail, how a carbon tax would be levied, whether “upstream” or “downstream.” From the paper:

Fossil fuel emissions could be taxed using either a so-called “upstream” or “midstream” approach. The approaches differ on the point in the supply chain at which the fuel’s emissions would be taxed: An upstream approach taxes raw fuels while a midstream approach taxes fuels at a designated point further down the supply chain but before they reach final consumers. A hybrid of the two approaches is also possible.

There’s a lot more about where and when the tax would be applied, which I won’t go into here (for what it’s worth, the CTC recommends taxing as far upstream as possible). What I want to focus on is the impact, both economic and environmental. Here’s what the OTA projects as the effect on revenue and emissions:

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There’s an assumption in there that there would be a reduction in income tax rates, which is probably true, but since we’re talking about a state-level tax, we can’t really worry about that. For what it’s worth, here’s what they have to say about it:

The magnitude of the offset depends on the full range of price changes precipitated by the carbon tax, since these affect incomes differentially, and the resulting reductions in income tax revenues depend in turn on the taxes and tax rates applied to these affected incomes. Induced price changes also affect baseline government spending; the reduction in (relative) prices that leads to reduced incomes also reduces what the government must spend on goods and services (e.g., Sheiner 1994), an effect that somewhat compensates for the loss in income tax revenues. As with the income effect, the effect on government spending depends on the full set of price changes induced by the carbon tax. The government budget effect is made more complex by the fact that many categories of spending are denominated in nominal terms or otherwise affected by price changes differently from consumer and business spending. Overall, the induced income tax effect, adjusted for government spending effects, is assumed to reduce the amount of gross carbon tax revenues available for new spending or reductions in other taxes by 25 percent.

Can I Have Some Data?

Of course!

The Treasury Department paper proposes a rate of $43/ton, but I think that’s a bit too aggressive. Instead, take a look at the Bernie Sanders tax plan from his 2016 Presidential run, compiled here by the Tax Policy Center:

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So we’ll stick with $15/ton for right now. The latest data from the EPA is from 2014, when Georgia produced 138.9 million metric tons of CO2. Based on some quick back-of-the-envelope math, a Carbon Tax instituted in 2017 would raise $2.083 billion for the state, which isn’t a bad day’s work.

That’d be on top of the almost $10 billion Georgia pulled in from business taxes in 2015, or, if you want, the $600 million in excise taxes (Source).

What To Do With It?

The most common idea is a dividend check. I’m a huge fan of the idea of a UBI (a Universal Basic Income), or, as I like to call it, a Citizen’s Dividend, and I can’t really believe this is the first time I’ve mentioned it here. Let’s look at the numbers and see if that’s feasible.

The Census Bureau says that, in 2015, there were 10,310,371 people in Georgia. The years are off, so this isn’t perfect or scientific or anything, but that works out to 13.47 metric tons of CO2 per person. If we were to pay back everybody at the same rate the CO2 was taxed ($15/ton), every person would get a $202 check. Also not a bad day’s work, but hardly a significant change.

If we limited it to people over the age of 18 (7,660,605), we’d end up with about 18 tons per person, which works out to about $270. You’d be able to buy an extra video game, or a nice bottle of whiskey, but again, it isn’t life changing. If we keep it over 18 but cut out everyone over 65 (which is the way I’ve been thinking about a CitDiv ), we’d get 6,340,878 people, which is about 21 tons per person, or $330. Not chump change, sure (in total fairness, the Treasury’s analysis said a national carbon tax would render a dividend of $583, so nobody’s ever getting rich off of this).

I think a better idea (from an economic perspective, if not a social justice-oriented one) would be some kind of corporate rebate, a matching tax incentive to invest in renewable energy, or even carbon capture technology. Ideally, this would soften the blow of the tax while prodding businesses to shift away from polluting the environment. The CTC puts it this way:

The bill should provide the opportunity for partial or total rebate of the tax payments if the paying entity can prove that some or all of the carbon dioxide emissions will be kept from entering Earth’s atmosphere for millenia.

I don’t love the idea of corporate welfare, and I certainly don’t love the idea of leaving CitDiv money on the table, but I think this is the best way to go, for reasons I’ll spell out in a moment.


The biggest, of course, is that this a tax increase, and worse, a purposefully distortionary one. As an excise tax, that it changes consumer behavior is a feature, not a bug, and it’s difficult to predict how the market reacts to that sort of thing. And as with all flat taxes, it’s regressive, hitting the single mom trying to fill up at the gas station harder (as a proportion of her income) than the factories spewing CO2 into the atmosphere.

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It might destroy business in Georgia. The beauty of a federal carbon tax is that there’s nowhere any company can go to escape it; if it’s only in one state, you’d effectively be providing a huge reason for companies to relocate. The economic effects of that would be huge–job losses leading to depressed wages, meaning lower spending, which means less sales tax revenue, among many other things.

For an example, look at that 9.2% increase in the price of gasoline. Now, this is imperfect, because we have no idea how it would scale, going from national to state, but it illustrates the point. A 9.2% increase in the price of gas would be about 21 cents (looking at the Circle K next to my house, which is selling gas at about $2.25 a gallon). For reference, the Tax Foundation says that a nationwide gas tax increase of 28 cents would lead to a loss of 45,000 jobs.

Furthermore, the Tax Foundation says that a $20/ton carbon tax would lead to 425,000 lost jobs. They’re looking at all those jobs spread around the country–half a million jobs lost in Georgia would be devastating.

That’s the real bugbear of all this, I think, that the results are pretty nebulous. All we have are hypotheticals and models, and no real way to predict what the outcome would be. For what it’s worth, I fully support the idea of a carbon tax, even an imperfect one, and I would love to see Georgia be the first one to do it–but I’ve got a lot of questions I want answered first.

In the meantime, remember what we’re trying to prevent:



Categories: Get Wonky

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4 replies


  1. Get Wonky: Yes, A UBI Post – The Georgia Wonk
  2. Why Georgia (Still) Needs A Carbon Tax – The Georgia Wonk

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