Calculating Various Fuel Prices under a Carbon Tax
Marc Hafstead and Paul Picciano
Date
Nov. 28, 2017
A carbon tax puts a price on fossil fuels in proportion to the carbon content in each fuel. Because carbon content differs by fuel type, a carbon tax changes the relative prices of various fuels. By increasing the price of carbon-intensive forms of energy, a carbon tax incentivizes shifts toward energy that is less carbon-intensive (e.g., from coal to natural gas, or coal to renewable electricity generation) as well as reductions in total energy demand (e.g., reduced demand for gasoline or electricity).
We’ve previously reported estimates for carbon dioxide emissions and tax revenues under alternative carbon tax price paths. Here we focus on the impacts of a carbon tax on the price of each type of fuel, with a new fuel price calculator that translates carbon tax levels into price changes for fossil fuels. In some instances, the calculation is fairly straightforward: each dollar of a carbon tax translates into (approximately) an additional penny per gallon in the price of gasoline, for example. For select fuels, users can choose a tax rate and see how prices change, in both absolute terms and relative to average national prices in 2015.
https://www.resourcesmag.org/common-resources/calculating-various-fuel-prices-under-a-carbon-tax/
