Carbon Tax and the Big 3 Fossil Fuels

Carbon taxes will make Natural Gas the last fossil fuel. A modest US carbon tax of $20 per metric tonne of CO2 equivalent ($20/tCO2E) is forecast to end Coal and slash Oil consumption, but create a boom for Natural Gas within 5 years. We use Structural Vector Auto Regressions (SVARs) to gauge short-term effects of a US carbon tax high enough to meet the Paris Agreement to limit global mean temperature rise below 2° Celsius. At $20/tCO2E equivalent, this tax is at the lower bound of an effective range estimated by the UN High-level Commission on Carbon Pricing (2017). But we are using US data, and the US has many structural advantages here. Global carbon taxes will likely be higher -- raising vital questions of international impact and financial aid.