Revenues
Impose a Tax on Emissions of Greenhouse Gases
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– | |
Decrease (-) in the deficit | |||||||||||||
Apply a $25 tax per metric ton of emissions and increase that tax annually by 5 percent | -53.4 | -81.3 | -82.5 | -85.1 | -89.4 | -94.1 | -99.4 | -105.0 | -111.0 | -118.1 | -391.7 | -919.3 | |
Apply a $25 tax per metric ton of emissions and increase that tax annually by 2 percent | -53.4 | -80.2 | -79.4 | -79.6 | -81.1 | -82.9 | -85.3 | -87.7 | -90.4 | -93.6 | -373.7 | -813.6 | |
Apply a $15 tax per metric ton of emissions and increase that tax annually by 8 percent | -33.1 | -50.7 | -52.9 | -56.5 | -60.8 | -65.6 | -71.4 | -77.6 | -84.5 | -92.4 | -254.0 | -645.4 | |
Apply a $25 tax per metric ton of emissions, excluding gasoline, and increase that tax annually by 5 percent | -42.2 | -63.3 | -63.3 | -65.0 | -67.9 | -71.2 | -75.1 | -79.3 | -83.8 | -89.2 | -301.7 | -700.2 | |
Data sources: Staff of the Joint Committee on Taxation; Congressional Budget Office.
This option would take effect in January 2025.
An offset to reflect reduced income and payroll taxes has been applied to the estimates in this table.
All increases in the tax rate under this option would be adjusted for inflation.
The accumulation of greenhouse gases in the atmosphere—particularly of carbon dioxide (CO2) released when fossil fuels (such as coal, oil, and natural gas) are burned—contributes to climate change. Climate change imposes costs and increases the risk of severe economic harm to countries around the globe, including the United States. The federal government imposes a fee on certain emissions of methane from the oil and gas industry, provides subsidies to reduce emissions from specific sources, and regulates some emissions in an effort to reduce them; however, emissions of CO2 and most other greenhouse gases are not taxed.
This option consists of four alternatives that would tax emissions of greenhouse gases. (The option would not impose a tax on methane emissions from the oil and gas industry that are already subject to a charge.)
The first alternative would impose a tax of $25 per metric ton on energy-related emissions of CO2 in the United States (such as those from electricity generation, manufacturing, and transportation) and on some other greenhouse gas emissions from large U.S. manufacturing facilities. The tax would increase at an annual rate of 5 percent plus the rate of inflation since the previous year.
The second alternative is identical to the first, except that the annual rate of increase would be 2 percent, adjusted for inflation.
The third alternative would start the tax at a lower initial rate, $15 per metric ton, but would increase that tax more rapidly over time—by 8 percent each year, adjusted for inflation.
The fourth alternative would, like the first, start the tax at $25 per metric ton and increase it by 5 percent each year, adjusted for inflation. Unlike the first alternative, however, the fourth alternative would exclude gasoline from the tax.