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Tax-versus-trading and efficient revenue recycling as issues for greenhouse gas abatement

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  • Pezzey, John C.V.
  • Jotzo, Frank

Abstract

We give empirical welfare results for global greenhouse gas emission abatement, using the first multi-party model to include both tax-versus-trading under uncertainties, and revenue recycling. Including multiple, independent parties greatly reduces the welfare advantage of an emissions tax over emissions (permit) trading in handling abatement-cost uncertainties, from that shown by existing, single-party literature. But a previously ignored and much bigger advantage of a tax, from better handling uncertainties in business-as-usual emissions, greatly boosts the overall tax-versus-trading advantage. Yet the degree to which each mechanism is used to raise and recycle revenue efficiently by lowering distortionary taxes – rather than recycle revenue as lump sums, or not raise revenue by giving tax thresholds or free permits – may in turn dominate any tax-versus-trading advantage. Choosing the best greenhouse abatement mechanism should thus consider the issues of tax-versus-trading and efficient revenue recycling together.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 64 (2012)
Issue (Month): 2 ()
Pages: 230-236

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Handle: RePEc:eee:jeeman:v:64:y:2012:i:2:p:230-236

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Emission pricing; Tax-versus-trading; Uncertainties; Revenue recycling; Climate policy; Global;

References

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Cited by:
  1. Wood, Peter J. & Heindl, Peter & Jotzo, Frank & Löschel, Andreas, 2013. "Linking price and quantity pollution controls under uncertainty," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 13-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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