The Impact of Carbon Dioxide Emission Reductions on Living Standards and Lifestyles

This study identifies and begins to quantify how U.S. consumers and businesses would alter their lifestyles and business activities in response to a carbon tax. It also illustrates how business and individuals would rearrange their spending, leading to shifts in final demand and in the structure of the overall U.S. economy. This study shows that a $100 per tonne tax (which would leave U.S. emissions considerably above 1990 levels in the year 2010) reduces GDP by 2.3 percent relative to the baseline forecast, decreases business investment by 4.6 percent, and reduces consumer spending by 2 percent. Overall, even though carbon tax revenues are recycled back to the consumer, 89 percent of consumption categories are negatively affected by the carbon tax.

Introduction

In the international debate over possible climate change, a number of measures to reduce greenhouse gas emissions have been proposed. Each program, whether based on voluntary measures, standards, regulation, or taxes, has direct implications for economic activity in general and for individual consumers in particular. This study, which uses carbon taxes to provide the economic incentive for carbon emission reductions, identifies and begins to quantify how consumers and businesses in the United States would alter their lifestyles, business activities, and rearrange their spending, leading to shifts in final demand and in the structure of the overall U.S. economy.

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