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Why economists recommend a carbon tax and dividends to slow climate change

Blog / Healthy Planet / economists' letter on carbon tax
woman overlooking smoggy city hoping for a carbon tax

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A statement posted in the Wall Street Journal signed by 45 leading economists (including former Federal Reserve Chairmen Ben Bernanke, Alan Greenspan, Janet Yellen, and Paul Volcker) recommends a carbon tax as the best solution to climate change. Here's the plan they recommend to slow climate change and pollution and why a carbon tax is the best solution.

Economists' recommendations

  • “By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
  • The carbon tax should increase each year until emissions goals are met.
  • A carbon tax should replace regulations. A gradually increasing tax will give companies the confidence to invest in low carbon alternatives.
  • To protect U.S. competitiveness there should be a border adjustment.
  • All revenue should be returned to citizens through a dividend to help offset the higher price of energy.

Similar carbon tax plans

The letter refers to the Climate Leadership Council for more information. The Climate Leadership Councils founding statement has the same points, but the statement to the Wall Street Journal has one additional point explaining emissions are a market failure.

Other economists have endorsed similar carbon pricing plans. William Nordhaus received the Nobel Prize “for integrating climate change into long-run macroeconomic analysis” in 2018. Read The Climate Casino: Risk, Uncertainty, and Economics for a Warming World* for detailed reasons for a carbon tax.

Public opinion

I read through the comments below the economists' statements and let's just say they weren't all in favor. That's discouraging, but the thing is, it's also a relatively new idea for most people. New ideas are historically met with resistance. A woman's right to vote, gay marriage, and even recycling.

There's a general marketing rule that says we need to see something seven times before we buy it. That just might be the case with a carbon tax. It might not be met with open arms by the general public today, but the more we all discuss it, the more people just might get on board.

If you're interested in reading more about carbon pricing check out How Carbon Pricing Could Simplify Sustainable Living


Rebecca B. Kimber

I'm a sustainable living blogger, ISSP Sustainability Associate, and LEED Green Associate. I help readers find useful and inspiring circular economy products, environmental solutions, and sustainable home improvement ideas. I believe in living well and progress not perfection. I'm a Swedish California-girl, wife, and mom living in the Silicon Valley.
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Filed Under: Environmental problems and solutions

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