The push for a carbon tax has regained popularity as the 2025 fiscal storm and climate change debates intensify. Proponents claim it is a solution to pay for spending surpluses while reducing greenhouse gas emissions. But a carbon tax is a misguided, costly policy that should be rejected.

A carbon tax works more like an income tax than a consumption tax, and covers all forms of work, including capital goods production and construction. These sectors are heavy on carbon emissions, meaning the tax disproportionately burdens them and stifles investment and innovation — much like a progressive income tax, but with broader economic consequences.

For example, in the U.S., the construction sector alone is responsible for about 40 percent of carbon emissions. A carbon tax would severely penalize this industry, reducing its ability to grow, build new homes, and create jobs. In addition, implementing a carbon tax would impose enormous administrative costs. The federal tax code is already complex and expensive; a carbon tax would exacerbate these problems.

Determining net carbon emissions is a complex process subject to constantly changing and arbitrary federal definitions, increasing compliance costs for businesses and consumers.

Research by the Tax Foundation shows that a carbon tax would add billions of dollars in administrative costs each year. This burden would ultimately fall on consumers in the form of higher prices, less economic activity and fewer jobs.

The U.S. economy already faces $3 trillion in annual regulatory costs, including many energy-related restrictions. Moreover, the Biden administration has added more than $1.6 trillion in regulatory costs since taking office.

A core principle of free-market capitalism is that it involves limited government. A carbon tax contradicts this principle by increasing government regulation of everyday economic activities. The tax revenue would also allow for further overspending, although this is questionable given the supposed purpose of the tax is to reduce carbon emissions and thus tax revenues.

Furthermore, a carbon tax could favor certain production methods over others, distorting the level playing field on which free markets thrive and creating inefficiencies and market distortions. The government would pick winners and losers by favoring specific methods, undermining competition and economic growth. Renewable energy projects would likely receive preferential treatment in politics, diverting investment away from more efficient, practical technologies of the market.

Pigouvian taxes, designed to correct negative externalities, are often cited in support of carbon taxes. Named after economist Arthur Pigou, these taxes are designed to correct the negative effects of externalities by imposing costs equal to the external damage. But they can be counterproductive, because they inevitably have the wrong tax rate, which distorts economic activity.

Carbon taxes fail to account for complex economic interactions and unintended consequences. For example, the PROVE It Act proposes a new carbon tax framework but lacks a clear, consistent, and science-based basis for implementation. This uncertainty raises the stakes for economic disruption and higher costs for consumers.

Another important point in the debate about carbon tax is: ‘who decides?’

Climate science is constantly evolving, and economic models that predict the outcomes of carbon taxes are fraught with uncertainty. Imposing high costs on consumers based on uncertain science and unpredictable economic outcomes is not a sensible policy approach. We should promote voluntary measures and technological advances that naturally reduce emissions through market activity.

Importantly, the EPA does not consider carbon dioxide to be a harmful pollutant in the traditional sense, as it is essential to life. We need carbon dioxide to breathe and live fulfilling lives. This further calls into question the rationale behind taxing carbon emissions, as it imposes unnecessary economic pressure in an attempt to regulate a naturally occurring and necessary element.

Even if America were to do no better than other countries that have signed the Paris Agreement on carbon emission targets, China (and India) would not be interested. This would shift the unnecessary costs of reducing these emissions onto the Americans.

Moreover, the costs of carbon taxes can be significant. Rising production costs lead to higher prices for goods and services, which disproportionately affects low- and middle-income households — especially if they are already struggling with high inflation. This regressive nature undermines the perceived environmental benefits and places a heavier burden on those who can least afford them. For example, a $50-per-ton carbon tax could increase household energy costs by up to $300 per year, hitting those who can least afford it the hardest.

Countries that have implemented carbon taxes, such as some in Europe, have seen mixed results. Emission reductions have been minimal, while economic growth has been hampered. These policies often result in job losses and a decline in global competitiveness, demonstrating the unintended consequences of such interventions. France’s carbon tax, for example, led to widespread protests and economic disruption, illustrating the social and economic challenges of such policies.

While the intent behind a carbon tax — to reduce U.S. greenhouse gas emissions in an effort to combat global climate change — is questionable, the economic realities and principles of free-market economics prove it to be a flawed approach. With the fiscal storm likely to come next year, Congress should simply say no to the PROVE It Act and the carbon tax in general.

The bottom line is that increasing the government footprint through such a tax is neither conservative nor market-oriented. Instead, we should focus on market-driven solutions that encourage innovation and efficiency without imposing heavy regulations.