U.S. Tax Code Has Minimal Effect on Carbon Dioxide, Other GHG Emissions

FOR IMMEDIATE RELEASE: Thursday, June 20, 2013
CONTACT: Erin McKenzie
(919) 613-3652
erin.mckenzie@duke.edu

Durham, N.C. -- Current federal tax provisions have minimal net effect on greenhouse gas emissions, according to a new report co-authored by a researcher at Duke’s Nicholas Institute for Environmental Policy Solutions.

The report, which evaluates how key elements of the current tax code affect the nation’s greenhouse gas emissions, finds that several existing tax subsidies have unexpected effects, and others yield little reduction in greenhouse gas emissions per dollar of revenue loss.

“While the current code is complex and tries to achieve many different things—revenue collection, investment incentives, and a wide range of social and economic goals—it is not designed to lower greenhouse gases and so, unsurprisingly, it does not,” said Brian Murray, director for economic analysis at the Nicholas Institute and report co-author.

Murray was named to the National Research Council’s Committee on the Effects of Provisions in the Internal Revenue Code on Greenhouse Gas Emissions, along with 11 others, at the request of Congress in 2011 and with sponsorship from the U.S. Department of Treasury. The group was tasked with evaluating the most important tax provisions that affect carbon dioxide and other greenhouse gas emissions to estimate the magnitude of effects. The report, released today, is the culmination of those efforts.

The report considers both energy-related provisions—such as transportation fuel taxes, oil and gas depletion allowances, subsidies for ethanol, and tax credits for renewable energy—as well as broad-based provisions that may have indirect effects on emissions, such as those for employer-provided health insurance, owner-occupied housing, and incentives for investment in machinery.

Using energy economic models based on the 2011 U.S. tax code, the committee found that the combined effect of energy-related tax subsidies on greenhouse gas emissions is minimal and could be negative or positive. It noted that estimating the precise impact of the provisions is difficult because of the complexities of the tax code and regulatory environment. However, it found that these provisions achieve very little greenhouse gas reductions at substantial cost; the combined federal revenue losses from energy-sector subsidies in 2011 and 2012 totaled $48 billion. While few of these provisions were created solely to reduce greenhouse gas emissions, they are a poor tool for doing so, the report says.

In addition, the committee examined the broader implications of tax provisions and climate change policy.

“Although it was not the committee’s charge to recommend policy, we were asked to provide some guidance and principles for how tax policy can better achieve climate policy goals,” Murray said. “We find that tax policy can be a powerful tool to reduce greenhouse gases if designed in a way that directly encourages reductions such as putting a tax or other fee on greenhouse gas emissions.”

To read the full report, visit: http://www.nap.edu/catalog.php?record_id=18299.

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