Americans don’t exactly have much faith in their government right now, so excuse me for suggesting that we need to introduce more taxes. But if you consider the enormous benefits that extend from taxing some of society’s negative externalities — the unintended consequences of providing a good or service — it is much easier to swallow. Several new taxes could close the budget deficit, provide a windfall into future technology research, lower national health care costs (for everyone), encourage business investment, or simply reduce your household’s annual tax burden.
Don’t think it will work? There is a pile of evidence showing that tobacco taxes have in fact curtailed smoking rates in the last several decades. New York State, which tacks on the highest taxes per pack in the nation, has witnessed smoking prevalence drop 20% in the decade since 2003-2004. Ironically, tobacco companies are among the best performing stocks in the last 10 years. I think that bodes well for instituting additional taxes on even bigger negative externalities plaguing our nation.
I wrote a lengthy article detailing the benefits of a national carbon tax earlier this year. Study after study has called on policymakers to entertain the economic and environmental gains that could come from taxing carbon emissions, one of which from MIT went as far to call it a “win-win-win” proposition. Enacting a tax of $20 for every ton of emitted carbon that rises 4% annually would raise $111 billion in additional tax revenue in 2015 and $337 billion in 2050 (in 2012 dollars). That is some serious coin for Uncle Sam, but what does it mean for the energy industry and consumers?
Some see an environmental time-bomb with carbon emissions, while others see massive revenue potential. Source: Wikimedia Commons
Such a tax would act as the ultimate motivation for power generation companies and dirty industrial processes to invest in cleaner, perhaps renewable technologies. Consider that the production tax credit — a relatively modest subsidy aiding renewable power sources gain market share — allowed companies such as NextEra Energy, Inc. (NYSE:NEE) to boost American wind generation from just 6 billion kilowatt hours (kWh) in 2000 to 140 billion kWh in 2012. NextEra Energy, Inc. (NYSE:NEE) now has over 10,000 megawatts (MW) of wind capacity, which makes up 55% of its total portfolio. Imagine what a carbon tax would force the industry to do.