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Are Differentiated Carbon Taxes Inefficient? A General Equilibrium Analysis

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  • Brita Bye
  • Karine Nyborg

Abstract

Revenue-raising environmental policy instruments, such as carbon taxes, tend to be politically controversial. In practice, carbon taxes are often differentiated between polluters, implying unequal marginal abatement costs. Grandfathered tradeable permits seem less controversial; this instrument yields equal marginal abatement costs, but does not raise revenue. We compare a system of differentiated carbon taxes, exemplified by the current Norwegian carbon tax regime, to uniform carbon taxation and grandfathered tradeable emission permits. In this particular case, differentiated taxes are welfare superior to grandfathered permits. Nevertheless, uniform carbon taxes outperform both.

Suggested Citation

  • Brita Bye & Karine Nyborg, 2003. "Are Differentiated Carbon Taxes Inefficient? A General Equilibrium Analysis," The Energy Journal, , vol. 24(2), pages 95-113, April.
    • Handle: RePEc:sae:enejou:v:24:y:2003:i:2:p:95-113
    DOI: 10.5547/ISSN0195-6574-EJ-Vol24-No2-4
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    References listed on IDEAS

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    3. Parry, Ian W. H. & Williams III, Roberton C., 1999. "A second-best evaluation of eight policy instruments to reduce carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 347-373, August.
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