A DISTRIBUTIONAL ANALYSIS OF AN ENVIRONMENTAL TAX SHIFT: Data 3

The carbon tax is allocated to petroleum products (42 percent) , natural gas (22 percent), and coal (35 percent) on the basis of aggregate carbon dioxide emissions in 1995. Based on this breakdown, I allocate $24 billion of carbon tax to petroleum, $12 billion to natural gas, and $20 billion to coal. The tax on coal is allocated to the coal mining industry while I allocate the tax on natural gas to the output of the crude oil and natural gas industry used by electric and gas utilities.

In addition to a carbon tax, I model a motor fuels excise tax. This is a tax on gasoline and diesel fuel sales. Currently, federal excise taxes on motor fuels are 18.30 per gallon of gasoline and 24.30 per gallon of diesel fuel (CBO, 1997). I model an increase in the gasoline tax of 150 per gallon and an increase in the diesel fuel tax (for diesel in highway use) of 9.40 per gallon. Based on fuel consumption in 1994 (and assuming inelastic demand), these taxes would raise an additional $19.8 billion in tax revenue. Gasoline is used directly by consumers and is used by businesses. The former is allocated directly to households while the latter is allocated to the transportation industry in the Input-Output Accounts. Based on gasoline expenditures reported in personal consumption expenditures in NIPA accounts, personal gasoline consumption accounts for 85 percent of total gasoline expenditures. Thus, I allocate 85 percent of the gasoline tax revenues to consumers directly and the remaining 15 percent along with the diesel tax revenue as an additional cost of production (higher transportation costs) and allocate the tax based on industry use of transportation.

Taxes on air pollution can be levied on point source or non-point sources of pollution.

Table 2. Stationary Source Emissions in 1990

Pollutant
SulphurOxides NitrousOxides VolatileOrganic

Compounds

ParticulateMatter
Total Emissions (Thousands of Tons Metric) 20152.4 11535.3 8209.8 2950.1
Coal Combustion 77.2% 61.7% 0.7% 5.2%
Natural Gas Combustion and Pipelines 0% 28.4% 0.9% 1.0%
Fuel Oil Combustion 7.3% 4.8% 0.1% 1.8%
Industry
Agriculture 0% 0% 2.1% 44.7%
Coal Mining 0% 0% 0% 11.2%
Crude Petroleum & NG 0% 0% 6.6% 0%
Petroleum Refining 3.3% 1.9% 8.6% 0.9%
Electric Utilities 0% 0% 0% 0%
Gas Utilities 0% 0% 0% 0%
Construction 0% 0% 9.3% 0%
Metals & Machinery 4.5% 0.4% 0.8% 9%
Motor Vehicles 0% 0% 2.2% 0%
Misc. Manufacturing 7.7% 2.7% 62.6% 26.1%
Services 0% 0% 6% 0%
Housing Services 0% 0% 0% 0%

For point source emissions, I model a $150 per ton tax on sulphur dioxide (SO2) emissions, a $1500 per ton tax on nitrogen oxide (NOx) emissions, a $900 per ton tax on particulate matters (PM-10), and a $2000 per ton tax on volatile organic compounds (VOC). In order to distribute these taxes to consumer goods, I need to allocate emissions across industries. Table 2 provides information on emissions in 1990 from which I make this allocation. Sulphur oxide (SOx) emissions arise predominately from coal and fuel oil combustion. I allocate the tax to SO2 on the basis of SOx emissions with the tax on coal applied to the coal mining industry and the tax on fuel oil applied to the use of output from the fuel oil and natural gas industry by the petroleum refining industry. Industry emissions are allocated to their respective industries./span