The first major update of CTC’s carbon-tax model since 2021 is now in the books, calibrated to 2023 emissions and the putative emissions-reducing provisions of the Inflation Reduction Act. One result stands out: Without federal legislation mandating a robust national carbon tax, the U.S. won’t come close to achieving the hoped-for 50% decline in carbon emissions (from 2005 levels) in the reasonably foreseeable future.
A $20/$15 carbon tax could halve carbon emissions by 2035
A national carbon tax starting next year at $20/ton and rising annually by $15/ton will cut U.S. CO2 emissions in half from 2005 levels in 2035. To halve emissions by 2030 requires $25/ton for both the starting price and the annual rises.
A national carbon price that took effect in 2025 at $20 per (short) ton and rose by $15 per ton each year would, by 2035, halve U.S. emissions of carbon dioxide from fossil fuel combustion: from 6,120 million metric tons (“tonnes”) in 2005, the standard baseline year, to an estimated 3,068 million tonnes in 2035, according to CTC’s model (Excel spreadsheet, 2 MB). That computes to a 50% reduction (rounded from 49.9%).
[NB: The site hosting the Excel file is temporarily down, please check back soon.]
But without a national carbon price, our model projects U.S. emissions in 2035 of 4,606 million tonnes. That would be just 25% below 2005 emissions, putting the country only halfway to the 50%-reduction goal in 2035. And even that piddling progress entails pushing back the customary 2030 target for halving U.S. emissions to 2035, a 5-year delay.
To be fair, the “halving by 2030” goal is generally construed to encompass not just carbon dioxide but also methane, which is regarded as lower-hanging greenhouse-gas fruit on account of its relative concentration in more easily regulatable oil and gas extraction and transport. This January methane began to be subjected to emissions pricing, through a provision of the Inflation Reduction Act mandating that emissions above a certain threshold be taxed at a rate of $900 per tonne.
But even assuming an optimistic three-fourths reduction in methane and other non-carbon GHG’s, CO2 emissions from fossil fuel-burning would have to fall by 44% from 2005 to achieve an overall 50% reduction in U.S. greenhouse gas emissions. Without a national carbon price, the projected CO2 reduction from 2005 is just 17% in 2030 and, as noted, only 25% in 2035, according to CTC’s model.
Halving carbon emissions by 2030 requires a more heroic carbon tax, one starting at $25/ton in 2025 and rising annually by that amount
We also ran the CTC model to determine the carbon price level and trajectory required to halve U.S. 2005 carbon emissions by 2030 rather than 2035. Talk about a tall order! Here’s what the requisite carbon tax would look like:
- The carbon tax would take effect in 2025 (same as in the 2035 scenario).
- The initial price would be $25 per ton of CO2 rather than $20.
- The annual price rise would be the same $25/ton, rather than just $15/ton in the 2035 scenario. That means reaching triple digits in the tax’s fourth year.
- And — this is a bit technical — we’re relaxed the model assumption of the maximum annual tax rise to which the U.S. economy can fully react, from $20/ton previously to $25/ton.
It goes without saying that the present-day American political system isn’t equipped to enact and implement such an “heroic” (an adjective we prefer to “draconian”) carbon tax.
The still-lonely radical center
Prominent voices calling for carbon taxes beyond token amounts (e.g., $10 or $20 per ton with little or no increases) are precious few, not just in absolute terms but relative to the pre-2010 period in which climate concern was widespread and neither the left nor the right had been consumed by their respective demonizations: carbon pricing (on the left) or climate concern of any sort (on the right).
Indeed, here at Carbon Tax Center, we’ve traded in our web pages that previously celebrated carbon tax supporters for pages like Carbon Pricing and Environmental Justice, Progressives and Carbon Pricing, and Conservatives, all of them grouped under a heading of “Politics.” Each is essentially a litany of grievances and rejections of carbon pricing and/or climate action, period.
This chart, from CTC’s newly updated carbon tax model, shows the futility of looking for a single invention or regulation or subsidy to slash U.S. emissions. Fossil fuels suffuse our economy, making robust carbon pricing essential to achieving big across-the-board cuts.
This isn’t polarization, it’s a simultaneous disavowal by both ends of the political spectrum of the lone plausible transformational climate-preserving policy measure. (Rather than “ends” I should say “sides” of the spectrum, given that anti-pricing has spilled over from the confines of the respective extremes and now appears to occupy most of the two sides.)
Omens
Consider these two minor but telling signposts from the past week.
One was a NY Times “Sunday Review” guest essay last weekend, I’m a Young Conservative, and I Want My Party to Lead the Fight Against Climate Change, by one Benji Backer, founder-director of the American Conservation Coalition.
Alas, the essay was cut from the same generic cloth as other conservative calls to climate action. Here’s an excerpt:
We cannot address climate change or solve any other environmental issue without the buy-in and leadership of conservative America. And there are clear opportunities for climate action that conservatives can champion without sacrificing core values, from sustainable agriculture to nuclear energy and the onshoring of clean energy production.
Ho-hum. But, most strikingly, zero mention of carbon pricing — not even a nod to the revenue-neutral type such as fee-and-dividend that circumvents right-wing canards about government overreach by “dividending” the carbon revenues to households, thus correcting the market failure driving carbon emissions without “growing the government.”
So much for the right wing. On the left, I had the frustrating experience of meeting a director of an iconic American environmental organization at a public event and bonding with him over our shared dismay at the organization’s post-2016 submission to anti-carbon-pricing rhetoric . . . only to be ghosted when I tried to arrange a meet-up to possibly grow our newfound patch of common ground.
So much for dialogue in service of effective climate policy.
Can’t we bring U.S. emissions down sharply without carbon pricing?
Alas, no. U.S. emission progress perennially falls short of even modest hopes. Almost from the moment the 2022 Inflation Reduction Act — which CTC supported from the git-go — was enacted into law, it has bumped up against a calamity of transmission bottlenecks, supply-chain woes and high interest rates. Even worse, perhaps, is the legal-regulatory “default” against building almost anything, even essential elements of the clean-energy infrastructure the IRA was intended to unlock
(Just after this post went up, I came across NY Times columnist Ezra Klein and Atlantic staff writer Jerusalem Demsas’s trenchant dive into the permitting-resistance phenomenon. Their analysis traces much of today’s disabling red tape and NIMBYism to Democratic Party empathy that prioritizes concerns about marginalized constituencies over the common good. Audio version here, transcript here.)
And let’s not overlook the emergent hellspawns of energy demand like AI processing, cyber-currency computing and ever-larger SUV’s and pickup trucks driven ever more miles, all of which threaten to pile on new carbon emissions almost as fast as incumbent emissions are removed.
As we’ve argued in post after post — just scroll through our monthly archives — these and other decarbonization derailments would be greatly alleviated by the robust carbon taxes we scoped above. Pricing the climate benefits of reduced fossil fuel use into the vast array of alternatives — from clean energy to all the ways of using less — will raise their profitability and, before long, bend society’s defaults toward replacing fossil fuels.
Our updated carbon-tax model shows that U.S. carbon emissions fell by 2.3% from 2022 to 2023. If there weren’t a climate emergency, that might qualify as a decent win. But in our real, overheating world, that rate doesn’t come close to the 4.1% compound annual decline needed to halve 2005 emissions by 2035, much less the 6.9% annual emissions shrinkage required to meet the same goal in 2030.
The insufficiency of even the best-intentioned policies and programs to meet necessary carbon targets without robust carbon taxing can’t be hidden indefinitely. The carbon tax reckoning awaits.
Americans are paying more for insurance, electricity, taxes, and home repairs every year. What many people may not realize is that climate change is already one of the drivers behind those rising costs.
For many households, climate change is no longer just an environmental issue. It is becoming a cost-of-living issue. While climate impacts like melting glaciers and shrinking polar ice can feel distant from everyday life, the financial effects are already showing up in monthly budgets across the country.
Today, a larger share of household income is consumed by fixed costs such as housing, insurance, utilities, and healthcare. (3) Climate change and climate inaction are adding pressure to many of those expenses through higher disaster recovery costs, rising energy demand, infrastructure repairs, and increased insurance risk.
The goal of this article is to help connect climate change to the everyday financial realities people already experience. Regardless of where someone stands on climate policy, it is important to recognize that climate change is already increasing costs for households, businesses, and taxpayers across the United States.
More conservative estimates indicate that the average household has experienced an increase of about $400 per year from observed climate change, while less conservative estimates suggest an increase of $900.(1) Those in more disaster-prone regions of the country face disproportionate costs, with some households experiencing climate-related costs averaging $1,300 per year.(1) Another study found that climate adaptation costs driven by climate change have already consumed over 3% of personal income in the U.S. since 2015.(9) By the end of the century, housing units could spend an additional $5,600 on adaptation costs.(1)
Whether we realize it or not, Americans are already paying for climate change through higher insurance premiums, energy costs, taxes, and infrastructure repairs. These growing expenses are often referred to as climate adaptation costs.
Without meaningful climate action, these costs are expected to continue rising. Choosing not to invest in climate action is also choosing to spend more on climate adaptation.
Here are a few ways climate change is already increasing the cost of living:
- Higher insurance costs from more frequent and severe storms
- Higher energy use during longer and hotter summers
- Higher electricity rates tied to storm recovery and grid upgrades
- Higher government spending and taxpayer-funded disaster recovery costs
The real debate is not whether climate change costs money. Americans are already paying for it. The question is where we want those costs to go. Should we invest more in climate action to help reduce future climate adaptation costs, or continue paying growing recovery and adaptation expenses in everyday life?
How Climate Change Is Increasing Insurance Costs
There is one industry that closely tracks the financial impact of natural disasters: insurance. Insurance companies are focused on assessing risk, estimating damages, and collecting enough revenue to cover losses and remain financially stable.
Comparing the 20-year periods 1980–1999 and 2000–2019, climate-related disasters increased 83% globally from 3,656 events to 6,681 events. The average time between billion-dollar disasters dropped from 82 days during the 1980s to 16 days during the last 10 years, and in 2025 the average time between disasters fell to just 10 days. (6)
According to the reinsurance firm Munich Re, total economic losses from natural disasters in 2024 exceeded $320 billion globally, nearly 40% higher than the decade-long annual average. Average annual inflation-adjusted costs more than quadrupled from $22.6 billion per year in the 1980s to $102 billion per year in the 2010s. Costs increased further to an average of $153.2 billion annually during 2020–2024, representing another 50% increase over the 2010s. (6)
In the United States, billion-dollar weather and climate disasters have also increased significantly. The average number of billion-dollar disasters per year has grown from roughly three annually during the 1980s to 19 annually over the last decade. In 2023 and 2024, the U.S. recorded 28 and 27 billion-dollar disasters respectively, both setting new records. (6)
The growing impact of climate change is one reason insurance costs continue to rise. “There are two things that drive insurance loss costs, which is the frequency of events and how much they cost,” said Robert Passmore, assistant vice president of personal lines at the Property Casualty Insurers Association of America. “So, as these events become more frequent, that’s definitely going to have an impact.” (8)
After adjusting for inflation, insurance costs have steadily increased over time. From 2000 to 2020, insurance costs consistently grew faster than the Consumer Price Index due to rising rebuilding costs and weather-related losses.(3) Between 2020 and 2023 alone, the average home insurance premium increased from $75 to $360 due to climate change impacts, with disaster-prone regions experiencing especially steep increases.(1) Since 2015, homeowners in some regions affected by more extreme weather have seen home insurance costs increased by nearly 57%.(1) Some insurers have also limited or stopped offering coverage in high-risk areas.(7)
For many families, rising insurance costs are no longer occasional financial burdens. They are becoming recurring monthly expenses tied directly to growing climate risk.
How Rising Temperatures Increase Household Energy Costs
The financial impacts of climate change extend beyond insurance. Rising temperatures are also changing how much energy Americans use and how utilities plan for future electricity demand.
Between 1950 and 2010, per capita electricity use increased 10-fold, though usage has flattened or slightly declined since 2012 due to more efficient appliances and LED lighting. (3) A significant share of increased energy demand comes from cooling needs associated with higher temperatures.
Over the last 20 years, the United States has experienced increasing Cooling Degree Days (CDD) and decreasing Heating Degree Days (HDD). Nearly all counties have become warmer over the past three decades, with some areas experiencing several hundred additional cooling degree days, equivalent to roughly one additional degree of warmth on most days. (1) This trend reflects a warming climate where air conditioning demand is increasing while heating demand generally declines. (4)
As temperatures continue rising, households are expected to spend more on cooling than they save on heating. The U.S. Energy Information Administration (EIA) projects that by 2050, national Heating Degree Days will be 11% lower while Cooling Degree Days will be 28% higher than 2021 levels. Cooling demand is projected to rise 2.5 times faster than heating demand declines. (5)
These projections come from energy and infrastructure experts planning for future electricity demand and grid capacity needs. Utilities and grid operators are already preparing for higher peak summer electricity loads caused by rising temperatures. (5)
Longer and hotter summers also affect how homes and buildings are designed. Buildings constructed for past climate conditions may require upgrades such as larger air conditioning systems, stronger insulation, and improved ventilation to remain comfortable and energy efficient in the future. (10)
For many households, this means higher monthly utility bills and potentially higher long-term home improvement costs as temperatures continue to rise.
How Climate Change Affects Electricity Rates
On an inflation-adjusted basis, average U.S. residential electricity rates are slightly lower today than they were 50 years ago. (2) However, climate-related damage to utility infrastructure is creating new upward pressure on electricity costs.
Electric utilities rely heavily on above-ground poles, wires, transformers, and substations that can be damaged by hurricanes, storms, floods, and wildfires. Repairing and upgrading this infrastructure often requires substantial investment.
As a result, utilities are increasing electricity rates in response to wildfire and hurricane events to fund infrastructure repairs and future mitigation efforts. (1) The average cumulative increase in per-household electricity expenditures due to climate-related price changes is approximately $30. (1)
While this increase may appear modest today, utility costs are expected to rise further as climate-related infrastructure damage becomes more frequent and severe.
How Climate Disasters Increase Government Spending and Taxes
Extreme weather events also damage public infrastructure, including roads, schools, bridges, airports, water systems, and emergency services infrastructure. Recovery and rebuilding costs are often funded through taxpayer dollars at the federal, state, and local levels.
The average annual government cost tied to climate-related disaster recovery is estimated at nearly $142 per household. (1) States that frequently experience hurricanes, wildfires, tornadoes, or flooding can face even higher public recovery costs.
These expenses affect taxpayers whether they personally experience a disaster or not. Climate-related recovery spending can increase pressure on public budgets, emergency management systems, and infrastructure funding nationwide.
Reducing Climate Costs Through Climate Action
While this article focuses on the growing financial costs associated with climate change, the issue is not only about money for many people. It is also about recognizing our environmental impact and taking responsibility for reducing it in order to help preserve a healthy planet for future generations.
While individuals alone cannot solve climate change, collective action can help reduce future climate adaptation costs over time.
For those interested in taking action, there are three important steps:
- Estimate your carbon footprint to better understand the emissions connected to your lifestyle and activities.
- Create a plan to gradually reduce emissions through energy efficiency, cleaner technologies, and more sustainable choices.
- Address remaining emissions by supporting verified carbon reduction projects through carbon credits.
Carbon credits are one of the most cost-effective tools available for climate action because they help fund projects that generate verified emission reductions at scale. Supporting global emission reduction efforts can help reduce the long-term impacts and costs associated with climate change.
Visit Terrapass to learn more about carbon footprints, carbon credits, and climate action solutions.
The post How Climate Change Is Raising the Cost of Living appeared first on Terrapass.
A carbon credit purchase is not a transaction that closes at issuance. The credit may be retired, the certificate filed, and the reporting box ticked. But on the ground, in the forest, in the field, and in the community, the work continues. It endures for years. In many cases, for decades.
Carbon Footprint
Industries with the biggest nature footprints and what their decarbonisation looks like
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