Would carbon tax revenues be too volatile?

Every now and then I come across arguments I have not heard before, and then I pass them along:

…relying on carbon taxes is also a terrible way to finance the government.  We are talking about half a trillion dollars or so in revenue, so the percentage of financing would be quite large.  Income fluctuates, and that is a problem, but the spending on a particular set of items, like fossil fuels, has the potential to fluctuate even more.  Example: suppose we really are facing an oil production peak, and scarcity causes the price to spike?  Every 10% rise in oil prices will tend to cause something like a 5% reduction in long run demand (I’m rounding here – and thanks to Gar Lipow for his valuable work in collating the evidence), but this also means less carbon tax revenue, potentially a lot less.  This is a serious problem, one that the green taxers have not really confronted.

The wise guy answer is that we could buy U.S. government revenue insurance from the Chinese, or barring that, from Dubai.

Addendum: Here are some useful numbers.


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