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The Promise and Problems of Pricing Carbon: Theory and Experience

  • Aldy, Joseph E.

    (Harvard University)

  • Stavins, Robert N.

    (Harvard University)

Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp11-041.

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Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ecl:harjfk:rwp11-041
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  1. Stavins, Robert, 2007. "A U.S. Cap-and-Trade System to Address Global Climate Change," Working Paper Series rwp07-052, Harvard University, John F. Kennedy School of Government.
  2. Parry, Ian W.H. & Goulder, Lawrence H., 2008. "Instrument Choice in Environmental Policy," Discussion Papers dp-08-07, Resources For the Future.
  3. 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.
  4. Jeff Connor & Kurt Schwabe & Darran King & David Kaczan & Mac Kirby, 2009. "Impacts of climate change on lower Murray irrigation ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(3), pages 437-456, 07.
  5. Stavins, Robert, 2001. "Experience with Market-Based Environmental Policy Instruments," Discussion Papers dp-01-58, Resources For the Future.
  6. Congressional Budget Office, 2011. "The Effects of Renewable or Clean Electricity Standards," Reports 41451, Congressional Budget Office.
  7. Isaac, Morna & van Vuuren, Detlef P., 2009. "Modeling global residential sector energy demand for heating and air conditioning in the context of climate change," Energy Policy, Elsevier, vol. 37(2), pages 507-521, February.
  8. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  9. Congressional Budget Office, 2011. "The Effects of Renewable or Clean Electricity Standards," Reports 41451, Congressional Budget Office.
  10. Congressional Budget Office, 2011. "The Effects of Renewable or Clean Electricity Standards," Reports 41451, Congressional Budget Office.
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