An Innovation Carbon Price: Spurring Clean Energy Innovation While Advancing U.S. Competitiveness

March 30, 2011
ITIF proposes an Innovation Carbon Price—a unique approach to spurring clean energy innovation and boosting U.S. industrial competitiveness using a carbon tax.

The United States faces two key energy challenges—improving national security by reducing dependence on foreign oil and mitigating the impacts of climate change by reducing carbon emissions. Closely linked is another challenge—as well as an opportunity—boosting international economic competitiveness by discovering and widely commercializing clean energy technologies. Until now, the predominant approach to these challenges was to based solely on raising the cost of carbon, either with a tax or through cap and trade. But this approach has come under strong resistance in part because raising the price of energy hurts U.S. industrial competitiveness. ITIF proposes a unique, alternative approach to meet all three goals simultaneously.

The way to do it is through a revenue-neutral innovation carbon price. ITIF proposes a fifteen-year economy-wide carbon tax on upstream, combustible, non-feedstock fuel sources of $15 per ton. Roughly 83 percent of tax revenues would be recycled back into the economy as growth and innovation inducing business tax incentives. Businesses that invest in the building blocks of innovation and growth—R&D, workforce training, and capital equipment—would receive a much more generous tax incentive than they currently receive. The remaining 17% of revenue would fund a Clean Energy Innovation Trust Fund that would support clean energy innovation initiatives. We believe that with this proposal we can have our proverbial cake and eat it too: cut oil imports, reduce carbon emissions, boost U.S. competitiveness and economic growth, expand federal revenues from that growth, and spur the expansion of a domestic clean energy industry.