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The Promise and Problems of Pricing Carbon: Theory and Experience


  • Joseph E. Aldy

    (Assistant Professor of Public Policy, Harvard Kennedy School; Nonresident Fellow, Resources for the Future; and Faculty Research Fellow, National Bureau of Economic Research)

  • Robert N. Stavins

    (Albert Pratt Professor of Business and Government, Harvard Kennedy School; University Fellow, Resources for the Future; and Research Associate, National Bureau of Economic Research)


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.

Suggested Citation

  • Joseph E. Aldy & Robert N. Stavins, 2011. "The Promise and Problems of Pricing Carbon: Theory and Experience," Working Papers 2011.82, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2011.82

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    References listed on IDEAS

    1. Congressional Budget Office, 2011. "The Effects of Renewable or Clean Electricity Standards," Reports 41451, Congressional Budget Office.
    2. 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, July.
    3. repec:cbo:report:41451 is not listed on IDEAS
    4. 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.
    5. Congressional Budget Office, 2011. "The Effects of Renewable or Clean Electricity Standards," Reports 41451, Congressional Budget Office.
    6. 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.
    7. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
    8. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435 Elsevier.
    9. 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.
    10. Lawrence H. Goulder & Ian W. H. Parry, 2008. "Instrument Choice in Environmental Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 152-174, Summer.
    11. Daugbjerg, Carsten & Pedersen, Anders Branth, 2004. "New Policy Ideas and Old Policy Networks: Implementing Green Taxation in Scandinavia," Journal of Public Policy, Cambridge University Press, vol. 24(02), pages 219-249, August.
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    Cited by:

    1. repec:gam:jsusta:v:9:y:2017:i:9:p:1563-:d:110715 is not listed on IDEAS
    2. George A. Gonzalez, 2016. "Transforming Energy: Solving Climate Change with Technology Policy . New York : Cambridge University Press . 360 pages. ISBN 9781107614970, $29.99 paperback. Anthony Patt , 2015 ," Review of Policy Research, Policy Studies Organization, vol. 33(1), pages 111-113, January.
    3. repec:eee:proeco:v:193:y:2017:i:c:p:172-182 is not listed on IDEAS
    4. repec:gam:jeners:v:11:y:2018:i:1:p:228-:d:127584 is not listed on IDEAS
    5. Stefan Niederhafner, 2014. "The Korean Energy and GHG Target Management System: An Alternative to Kyoto-Protocol Emissions Trading Systems?," TEMEP Discussion Papers 2014118, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Sep 2014.
    6. Yoshifumi Konishi & Nori Tarui, 2013. "Intra-Industry Reallocations and Long-run Impacts of Environmental Regulations," Working Papers 201307, University of Hawaii at Manoa, Department of Economics.

    More about this item


    : Global Climate Change; Market-Based Instruments; Carbon Pricing; Carbon Taxes; Cap-and-Trade; Emission Reduction Credits; Energy Subsidies; Clean Energy Standards;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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