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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Designer, Dan Carvajal
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Carbon Taxes and
the Future of Green Tax Reform
• By driving changes to the climate, carbon emissions will impose major long-
term economic costs, both here in the U.S. and around the world.
• Carbon taxes are an option to make the market reflect future costs of
carbon emissions, discouraging emissions and incentivizing development and
implementation of clean technology.
• Carbon taxes also come with design challenges and economic costs, including
reducing growth and falling more heavily on lower-income households.
• The problems of a carbon tax are shared by other environmental policies, as
regulation disproportionately burdens low-income people, while subsidies for
green technology tend to benefit the wealthy.
• The revenues from a carbon tax could be used to offset growth and
distributional concerns by lowering more distortionary taxes elsewhere and
providing cash payments to households.
Federal Policy Analyst
TAX FOUNDATION | 2
Climate change has become an increasingly pressing issue in Washington, D.C., as well as around
the world. The economic impact of climate change could be severe, thanks to both the increasing
frequency of extreme weather events and rising sea levels driving displacement.1 Changes to the
natural environment will create significant net costs for human well-being.
The solutions politicians propose are increasingly muddled. Some link climate change to an all-
encompassing agenda that expands government cont