Cap-and-trade or carbon taxes? The feasibility of enforcement and the effects of non-compliance
AbstractOne of the proposed alternatives to Kyotoâs cap-and-trade approach is a regime based on an internationally harmonized carbon tax. In this paper, we consider and compare the enforcement problems associated with a tax regime and a cap-and-trade regime, respectively. The paper tries to convey two main points. First, both types of regime require an effective enforcement mechanism. However, such a mechanism is unlikely to be adopted as part of a regime with full participation, because the political process leading up to its adoption tends to water down the enforcement mechanism to a point where it no longer has much bite. And even if this is somehow avoided, countries expecting compliance to be difficult or costly will almost certainly decline to sign â not to mention ratify â the resulting agreement. Second, the implications of non-compliance in a tax regime differ in important ways from the corresponding implications in a cap-and-trade regime. In a cap-and-trade regime emissions trading can make inaction legitimate for buyers of emission permits. In particular, overselling of permits by one (or a few) permit exporting countries might completely undermine the regimeâs environmental effect. In a tax regime, by contrast, one country's non-compliance can not make inaction by other countries legitimate. It follows that an agreement based on a harmonized carbon tax will always have some effect, provided that at least one country complies.
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 Springer in its journal International Environmental Agreements: Politics, Law and Economics.
Volume (Year): 6 (2006)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.springer.com/economics/journal/10784
Other versions of this item:
- Jon Hovi & Bjart Holtsmark, 2005. "Cap-and-Trade or Carbon Taxes? The Feasibility of Enforcement and the Effects of Non-Compliance," Discussion Papers 436, Research Department of Statistics Norway.
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- M. L. Weitzman, 1973.
"Prices vs. Quantities,"
106, Massachusetts Institute of Technology (MIT), Department of Economics.
- Pizer, William & Newell, Richard, 1998.
"Regulating Stock Externalities Under Uncertainty,"
dp-99-10-rev, Resources For the Future.
- Christoph Bohringer, 2002. "Climate Politics from Kyoto to Bonn: From Little to Nothing?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 51-71.
- Hoel, Michael & Karp, Larry, 2001.
"Taxes versus Quotas for a Stock Pollutant,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt5fx9p7kf, Department of Agricultural & Resource Economics, UC Berkeley.
- Aldy, Joseph & Barrett, Scott & Stavins, Robert, 2003.
"Thirteen Plus One: A Comparison of Global Climate Policy Architectures,"
Working Paper Series
rwp03-012, Harvard University, John F. Kennedy School of Government.
- Joseph E. Aldy & Scott Barrett & Robert N. Stavins, 2003. "Thirteen Plus One: A Comparison of Global Climate Policy Architectures," Working Papers 2003.64, Fondazione Eni Enrico Mattei.
- Michael Hoel & Larry Karp, 1999.
"Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty,"
1999.15, Fondazione Eni Enrico Mattei.
- Hoel, Michael & Karp, Larry, 2001. "Taxes and quotas for a stock pollutant with multiplicative uncertainty," Journal of Public Economics, Elsevier, vol. 82(1), pages 91-114, October.
- Hoel, Michael & Karp, Larry, 2000. "Taxes and Quotas for a Stock Pollutant with Multiplicative Uncertainty," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9v86p5s7, Department of Agricultural & Resource Economics, UC Berkeley.
- Haites, Erik & Missfeldt, Fanny, 2004. "Liquidity implications of a commitment period reserve at national and global levels," Energy Economics, Elsevier, vol. 26(5), pages 845-868, September.
- Jon Hovi & Tora Skodvin & Steinar Andresen, 2003. "The Persistence of the Kyoto Protocol: Why Other Annex I Countries Move on Without the United States," Global Environmental Politics, MIT Press, vol. 3(4), pages 1-23, November.
- Pizer, William, 1997. "Prices vs. Quantities Revisited: The Case of Climate Change," Discussion Papers dp-98-02, Resources For the Future.
- Downs, George W. & Rocke, David M. & Barsoom, Peter N., 1996. "Is the good news about compliance good news about cooperation?," International Organization, Cambridge University Press, vol. 50(03), pages 379-406, June.
- Michael Grubb, 2003. "The Economics of the Kyoto Protocol," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(3), pages 143-189, July.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Book Review: The Case for a Carbon Tax, by Shi-Ling Hsu
by James Handley in Carbon Tax Center on 2012-07-07 00:11:05
- van Vuuren, Detlef P. & den Elzen, Michel G.J. & van Vliet, Jasper & Kram, Tom & Lucas, Paul & Isaac, Morna, 2009. "Comparison of different climate regimes: the impact of broadening participation," Energy Policy, Elsevier, vol. 37(12), pages 5351-5362, December.
- Rohling, Moritz & Ohndorf, Markus, 2012.
"Prices vs. Quantities with fiscal cushioning,"
Resource and Energy Economics,
Elsevier, vol. 34(2), pages 169-187.
- Weisbach, David, 2009. "Instrument Choice is Instrument Design," Working paper 4, Regulation2point0.
- Mathews, John, 2007. "Seven steps to curb global warming," Energy Policy, Elsevier, vol. 35(8), pages 4247-4259, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.