Decreases investment in physical capital --- the link happens faster than the plan’s advantage

(Congressional Budget Office, “Effects of a Carbon Tax on the Economy and the Environment,” pg online @ https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/Carbon_One-Column.pdf //um-ef)

In the case of investment, increases in fossil-fuel prices because of a carbon tax would raise the cost of producing new physical capital. That increase in the cost of new capital would reduce the profits that the owners of capital earn on their investments, causing the overall level of investment to decline. (Lower returns on investment cause the same types of opposing forces described above for lower wages—they decrease the returns that people receive from saving and investing but increase the amount of saving and investing that people need to undertake to meet a given monetary goal. The first effect appears to generally outweigh the second, so taxes that reduce real returns on capital also reduce saving and investment.) The decrease in investment could be muted to the extent that a carbon tax motivated companies to replace capital equipment earlier than they would otherwise, such as replacing a coal-fired power plant with a wind or nuclear power plant. Because the new capital would replace scrapped capital, however, it would not increase the productive capacity of the economy. The generally negative impact on investment would begin when the carbon tax went into effect. Assuming that a significant delay occurred between when the tax was announced and when it took effect, anticipation of the tax might cause a slight increase in investment during the interim period if firms used that period to replace emissionintensive capital equipment. That additional investment could crowd out investment elsewhere in the economy. (Such crowding out would be greater the closer the economy was to operating at its maximum sustainable output during that interim period.)