Carbon tax would decrease US CO2 emissions through 2050

Setting a carbon fee (tax) of $35/t could decrease US energy-related CO₂ emissions by as much as 19% compared to 2020 levels, according to analysis by the US Energy Information Administration (EIA). The EIA projects that US energy-related CO₂ emissions would decrease most in the first 5–10 years, but decrease at a significantly slower rate beyond that period.

The EIA considered three levels of carbon fee, starting in 2023 at about $15/t, $25/t and $35/t of CO₂. The fees would grow by 5% each year through to 2050.

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

The EIA projected in its Annual Energy Outlook 2021 that following the pandemic, US energy-related CO₂ emissions would decrease through 2035 before levelling off and then increasing 5% over 2020 levels by 2050. The EIA projects that with a $15/t carbon fee (which would increase to more than $56/t by 2050), US energy-related CO₂ emissions would decrease 13% by 2050 over 2020 levels. A $25/t carbon fee (more than $94/t in 2050) would create a 17% decrease, and a $35/t carbon fee (almost $132/t in 2050) would lead to a 19% drop over the same period.

EIA analysis finds that setting carbon fees would have additional downstream impacts. For example, current US nuclear power capacity would be less likely to retire, while renewable energy capacity would increase more rapidly.

‘The US 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 comments. ‘We project that 280 GW of additional renewable energy capacity would come online by 2050 with a carbon fee compared to our baseline projections.’