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The beauty of a carbon tax – and its exemption for the poor

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A carbon tax would hit big polluters, most notably electrical power producers. They would be encouraged to eschew carbon-laden coal for relatively cleaner natural gas, or even cleaner sources of energy. But they would not be mandated to do so; each producer would make judgments based on its own criteria and supply structures.

Both taxes and source conversions would be expensive, and these costs would be passed on to consumers. This is the nub of the political objections to a tax: It would eventually be borne by consumers.

A benefit of consumers paying for the tax is that they would be encouraged to make important choices – such as adjusting their thermostats, changing their light bulbs, or refusing to do so and paying the tax. As with any tax on consumption, however, poorer Americans would suffer more than wealthier ones.

A simple exemption, however, could make the tax burden much lighter for poorer Americans, while at the same time encouraging even greater conservation. The idea is simple: Each household would be exempted from the tax for a modest amount of electricity per month or year; the exemption would be most effective if the system also imposed only minimal usage charges for electricity below the cutoff. The system would recognize almost all households need to use some electricity, but that consumption beyond the minimum would be taxed.

It is no surprise that poorer households tend to use less electricity than richer ones – in large part because they live in smaller dwellings. Apartment households use on average only about half the electricity of detached single-family home dwellers; among other factors, apartment buildings help insulate each unit.

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