PMA Bulletin -- March 13, 2013

New Carbon Tax a Blow to a Surging Manufacturing Sector

Just when American manufacturing is starting to flex its muscles again, a movement is underway in Washington to levy a new tax that would stifle that resurgence.  Two weeks ago legislation was introduced in the U.S. Senate to establish a tax on carbon based energy - the same affordable, reliable energy partly responsible for American reshoring.

A recent study from the National Association of Manufacturers (NAM) shows how a carbon tax would undermine our competitive advantage, and lead to job losses and higher prices for consumers. Energy experts also indicate that the tax would do little to reduce greenhouse gas emissions, its purported goal.

The NAM report, Economic Outcomes of a U.S. Carbon Tax, shows that levying such a tax would impact millions of jobs and result in higher prices for natural gas, electricity, gasoline and other energy commodities. Manufacturing output in energy-intensive sectors could drop by as much as 15.0 percent and in non-energy-intensive sectors by7.7 percent.

“As talk has continued in Washington about a carbon tax, the results of this study are very troubling as Pennsylvanians would see their energy bills go up across the board," said PMA Executive Director David N. Taylor. "Businesses throughout Pennsylvania would be dealt a costly blow. We are facing an unemployment rate of just under 8% in Pennsylvania, and a carbon tax will only cause us more economic harm."

Respected energy consultant, Geoffrey Styles, Managing Director of the GSW Strategy Group, said a carbon tax is one intended to change some market outcome; in this case to alter the market in an attempt to reduce CO2 emissions.

But Styles said that no matter how the tax is applied, whether upstream at the source of the carbon, or downstream, it would do little to reduce CO2.

“If it’s (tax) upstream in the form of per tonnage tax on carbon you’re doing virtually nothing to lower emissions,” Styles said. “A downstream tax, say at the gas pump, would have some minimal effect but not enough to justify the cost. What you’re really left with is using the climate change argument as a gimmick to raise taxes.”

Styles noted that European countries have had such a tax at the gas pump for years, but it has led to no market changes. “You see more diesel used over there (Europe) but don’t see anything more in the way of hybrid or electrics cars,” he said.

Not only would the tax hurt employers and their workers, but the costs would be felt by consumers as well. Economists David Kreutzer and Nicolas Loris of the Heritage Foundation found that a tax starting at $25-per-ton of CO2 emitted and increasing by 5% per year would cut a family of four’s income by $1,400 annually, raise their utility bills by $500 a year, and increase gasoline fill-ups by up to 50 cents per gallon.

Key findings for Pennsylvania include the following:

  • This tax would deal a blow to employment in Pennsylvania with a loss of worker income equivalent to 77,000 to 81,000 jobs in 2013 and 96,000 to 122,000 by 2023.
  • The cost of using natural gas would increase by more than 40 percent in 2013, the first year of the carbon tax study, adding to household energy bills and increasing operation costs for many Pennsylvania businesses.
  • Gas prices at the pump would jump by more than 20 cents a gallon in 2013.
  • Households in Pennsylvania would see a significant increase in their electricity rates, with an average increase of 13 percent in 2013.
  • By 2023, the hardest hit economic sectors in Pennsylvania would be coal, which would lose between 48 and 54 percent in economic output, and energy-intensive manufacturing, which would lose 1.9 percent, and non-energy-intensive manufacturing, which would lose between .5 and .9 percent. 

Key findings nationally include the following:

  • A carbon tax would lead to lower real wage rates because companies would have higher costs and lower labor productivity. Over time, workers’ incomes could decline relative to baseline levels by as much as 8.5 percent.
  • The impact on jobs would be substantial, with a loss of worker income equivalent to between 1.3 million and 1.5 million jobs in 2013 and between 3.8 million and 21 million by 2053.
  • Any revenue raised from the carbon tax would be far outweighed by the negative effects on the economy.
  • A carbon tax would have a negative effect on consumption, investment and jobs, resulting in lower federal revenue from taxes on capital and labor. 
  • The increased costs of coal, natural gas and petroleum products due to a carbon tax would ripple throughout the economy, resulting in higher production costs and less spending on non-energy goods.