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Greenhouse Gas Auctions and Taxes: Some Political Economy Considerations


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  • Robert W. Hahn


Many economists suggest that a cap-and-trade program and a carbon tax represent promising mechanisms for addressing climate change. A potentially attractive feature of both policies is that they have the potential to recycle revenues in an efficient manner. In the case of cap and trade, this would involve using auction revenues; in the case of a tax, it would involve using tax revenues. This article evaluates various arguments for auctions and taxes in light of political realities and finds that the enthusiasm for auctions and taxes has not been accompanied by sober assessments of whether and how the revenues would actually be used. Most of the evidence suggests that at least some of the revenues would not be spent wisely. Specifically, the article urges the government to compare a realistic set of policy options, while recognizing that the feasibility of different types of mechanisms can change over time. Furthermore, it is suggested that the introduction of political economy considerations may lead to an optimal level of pollution control that is less stringent than conventional economic analysis would suggest. Copyright 2009, Oxford University Press.

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Bibliographic Info

Article provided by Association of Environmental and Resource Economists in its journal Review of Environmental Economics and Policy.

Volume (Year): 3 (2009)
Issue (Month): 2 (Summer)
Pages: 167-188

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Handle: RePEc:oup:renvpo:v:3:y:2009:i:2:p:167-188

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Cited by:
  1. Lange, Ian & Polborn, Sarah, 2012. "Can lobbying encourage abatement? Designing a new policy instrument," Stirling Economics Discussion Papers, University of Stirling, Division of Economics 2012-03, University of Stirling, Division of Economics.
  2. Caffera, Marcelo, 2011. "The use of economic instruments for pollution control in Latin America: lessons for future policy design," Environment and Development Economics, Cambridge University Press, Cambridge University Press, vol. 16(03), pages 247-273, June.
  3. Gary D. Libecap, 2013. "Addressing Global Environmental Externalities: Transaction Costs Considerations," NBER Working Papers 19501, National Bureau of Economic Research, Inc.
  4. Regina Betz & Stefan Seifert & Peter Cramton & Suzi Kerr, 2009. "Auctioning greenhouse gas emissions permits in Australia," Environmental Economics Research Hub Research Reports, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University 0929, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
  5. Chih Chang, Ching & Chia Lai, Tin, 2013. "Carbon allowance allocation in the transportation industry," Energy Policy, Elsevier, Elsevier, vol. 63(C), pages 1091-1097.
  6. Spash, Clive L. & Lo, Alex Y., 2011. "Australia's Carbon Tax: A Sheep in Wolf's Clothing?," MPRA Paper 33997, University Library of Munich, Germany.
  7. Gary D. Libecap, 2014. "Addressing Global Environmental Externalities: Transaction Costs Considerations," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 52(2), pages 424-79, June.
  8. David Anthoff & Robert Hahn, 2010. "Government failure and market failure: on the inefficiency of environmental and energy policy," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 26(2), pages 197-224, Summer.
  9. Wang, Tao & Foliente, Greg & Song, Xinyi & Xue, Jiawei & Fang, Dongping, 2014. "Implications and future direction of greenhouse gas emission mitigation policies in the building sector of China," Renewable and Sustainable Energy Reviews, Elsevier, Elsevier, vol. 31(C), pages 520-530.


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