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

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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