EIA: Carbon tax would cut CO2 emissions as much as 19% by 2050

A tax on the sale of fossil fuels would decrease U.S. carbon dioxide emissions through 2050, according to the U.S. Energy Information Administration (EIA).

The EIA released Wednesday (Nov. 17) its Analysis of Carbon Fee Runs Using the Annual Energy Outlook 2021 that shows carbon fees as high as $35 per metric ton could decrease U.S. energy-related carbon dioxide (CO2) emissions by as much as 19% compared to 2020 levels. The emissions would decline the most in the first five to 10 years but decrease at a slower rate after that.

The tax would be implemented on the sale of fossil fuels based on the amount of CO2 emissions those fuels generate. The EIA studied three levels of carbon fees that would start in 2023, at about $15, $25 and $35 per metric ton of CO2. The fees would increase by 5% annually through 2050.

“In all the cases we considered, carbon fees would have a significant initial impact on CO2 emissions, though we do not see significant additional reductions after the first decade,” said EIA Acting Administrator Steve Nalley.

According to EIA’s Annual Energy Outlook 2021, after the pandemic, U.S. energy-related CO2 emissions are projected to fall through 2035 before leveling off and rising 5% over 2020 levels by 2050. A $15 carbon fee, which would increase to more than $56 in 2050, would reduce emissions 13% by 2050 over 2020 levels. Over the same period, a $25 carbon fee, which would increase to more than $94 in 2050, would reduce emissions by 17%, and a $35 carbon fee, which would increase to $132 by 2050, would reduce emissions by 19%.

Carbon fees would have a downstream effect on the energy sector beyond emissions, according to the EIA. For example, the existing U.S. nuclear power capacity would be less likely to retire, while renewable energy capacity would increase more rapidly.

“The U.S. electric power sector is most responsive to the carbon fees in our projections, as coal would lose market share to less carbon-intensive options such as natural gas and renewables,” Nalley said. “We project that 280 gigawatts of additional renewable energy capacity would come online by 2050 with a carbon fee compared to our baseline projections.”

Link here for the report.