Limits on the Economic Effectiveness of a Carbon Tax
AbstractMuch of the discussion regarding policies to reduce the emission of carbon dioxide (CO2) and other greenhouse gases focuses on least-cost strategies. Policies that minimize costs are desirable because they are economically more efficient than policies that are based on a command and control strategy (Gasloms and Stram, 1990). Among the many least-cost policies now under consideration, a carbon tax has received the most attention. As currently envisioned, a carbon tax would be levied on users of fossil fuels according to the amount of carbon that is emitted when the fuel is burned. Because the combustion of coal emits more CO2 per heat unit than oil, which emits more CO2 per heat unit than natural gas, the tax on coal would be larger than the tax on oil, which would be larger than the tax on natural gas.The fuel specific charges that would be imposed by a carbon tax are a popular policy option because many believe that a carbon tax will reduce emissions of carbon dioxide in an economically efficient manner. That is, a carbon tax will reduce the use of fossil fuels by spurring technical change and by inducing the substitution of capital, labour, and non-energy materials. Furthermore, a carbon tax will reduce emissions of CO2 by inducing substitution of fuels that emit less CO2 per heat unit. The reduction in emissions that is achieved by interfuel substitution is caused by the differences in the size of the tax on coal, oil, and natural gas. Because the tax on coal is largest, the price of coal will rise relative to oil and natural gas and users will substitute oil or natural gas for coal.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by International Association for Energy Economics in its journal The Energy Journal.
Volume (Year): Volume 12 (1991)
Issue (Month): Number 4 ()
Find related papers by JEL classification:
- F0 - International Economics - - General
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Williams).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.