In this paper we compute the rates of taxes that would need to be imposed on carbon-based fuels to achieve the U.K. Government's targets for CO2 emission reductions, based on models of energy demand for the manufacturing, transport and domestic sectors. We explore the sensitivity of these tax rates to assumptions about rates of growth of output and prices, target quantities and dates, and show that the efficient policy of equal tax rates across the three sectors would reduce costs by 20 percent compared to a policy of equiproportionate reductions in emissions across the three sectors. Finally we consider the impact of trying to achieve a target for cumulative CO2 emissions over the period 1990-2010, but starting to implement policy at different dates. We show that the costs of delaying the implementation of policy would be considerable in the manufacturing sector, but much smaller in the other sectors. Copyright 1991 by Oxford University Press.
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