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A Tax–Based Approach to Slowing Global Climate Change

  • Aldy, Joseph E.
  • Ley, Eduardo
  • Parry, Ian

This paper discusses the design of CO2 taxes at the domestic and international level and the choice of taxes versus cap and trade. There is a strong case for taxes on uncertainty, fiscal, and distributional grounds, though this critically hinges on policy specifics and how revenues are used. The efficient near–term tax is at least $5–$20 per ton of CO2 and the tax should be imposed upstream with incentives for downstream sequestration and abatement of other greenhouse gases. At the international level, a key challenge is the possibility that emissions taxes might be undermined through offsetting changes in other energy policies.

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Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 61 (2008)
Issue (Month): 3 (September)
Pages: 493-517

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Handle: RePEc:ntj:journl:v:61:y:2008:i:3:p:493-517
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  1. Bovenberg, A. Lans & Goulder, Lawrence H., 2002. "Environmental taxation and regulation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 23, pages 1471-1545 Elsevier.
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  3. Parry, Ian W.H. & Goulder, Lawrence H., 2008. "Instrument Choice in Environmental Policy," Discussion Papers dp-08-07, Resources For the Future.
  4. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2002. "The Effect on Asset Values of the Allocation of Carbon Dioxide Emission Allowances," Discussion Papers dp-02-15-, Resources For the Future.
  5. Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
  6. Dinan, Terry & Rogers, Diane Lim, 2002. "Distributional Effects of Carbon AllowanceTrading: How Government Decisions Determine Winners and Losers," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 199-221, June.
  7. Tol, Richard S. J., 2007. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics Discussion Papers 2007-44, Kiel Institute for the World Economy.
  8. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
  9. Charles I. Jones & John C. Williams, . "Measuring the Social Return to R&D," Working Papers 97002, Stanford University, Department of Economics.
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  14. Bruvoll, Annegrete & Larsen, Bodil Merethe, 2004. "Greenhouse gas emissions in Norway: do carbon taxes work?," Energy Policy, Elsevier, vol. 32(4), pages 493-505, March.
  15. repec:reg:rpubli:59 is not listed on IDEAS
  16. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
  17. Ian W.H. Parry & Hilary Sigman & Margaret Walls & Roberton C. Williams III, 2005. "The Incidence of Pollution Control Policies," NBER Working Papers 11438, National Bureau of Economic Research, Inc.
  18. Jacoby, Henry D. & Ellerman, A. Denny, 2004. "The safety valve and climate policy," Energy Policy, Elsevier, vol. 32(4), pages 481-491, March.
  19. A. Lans Bovenberg & Lawrence H. Goulder, 2000. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does it Cost?," NBER Working Papers 7654, National Bureau of Economic Research, Inc.
  20. Parry, Ian & Bento, Antonio, 1999. "Tax deductions, environmental policy, and the"double dividend"hypothesis," Policy Research Working Paper Series 2119, The World Bank.
  21. Bovenberg, A. Lans & Goulder, Lawrence H., 1997. "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses," National Tax Journal, National Tax Association, vol. 50(1), pages 59-88, March.
  22. Vehmas, Jarmo, 2005. "Energy-related taxation as an environmental policy tool--the Finnish experience 1990-2003," Energy Policy, Elsevier, vol. 33(17), pages 2175-2182, November.
  23. Stavins, Robert, 2003. "Market-Based Environmental Policies: What Can We Learn from U.S. Experience (and Related Research)?," Discussion Papers dp-03-43, Resources For the Future.
  24. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
  25. Warwick J. McKibbin & Peter J. Wilcoxen, 2006. "A Credible Foundation For Long Term International Cooperation On Climate Change," CAMA Working Papers 2006-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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