Comment on Nordhaus: Carbon Tax Calculations

Abstract

William Nordhaus argues (“Carbon Taxes to Move Toward Fiscal Sustainability,” Sept 2010) that “most people are surprised to learn that the effect [of a carbon tax] on gasoline prices is relatively small.” This is true in general, but the specific number cited by Nordhaus—that a tax of $25 per ton of carbon dioxide “would raise gasoline prices only 7 cents a gallon” —is a mistake, one that apparently came from a switch from discussing carbon units to carbon dioxide units. Each ton of carbon produces 44/12 tons of carbon dioxide. As a result, although a tax of $25 per ton of carbon would raise gasoline prices by approximately 7 cents per gallon, a tax of $25 per ton of carbon dioxide would raise gasoline prices by approximately 25 cents per gallon. A second issue is that it is not clear whether Nordhaus is using “metric tonnes” or the “short tons” often used in the U.S. The difference here is not great—one metric tonne is approximately 1.1023 short tons, so a tax of $25 per metric tonne CO2 is equal to a tax of about $23 per short ton CO2—but it highlights the need for caution when performing carbon tax calculations.