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Adding Quantity Certainty to a Carbon Tax: The Role of a Tax Adjustment Mechanism for Policy Pre-Commitment

Author

Listed:
  • Hafstead, Marc

    (Resources for the Future)

  • Metcalf, Gilbert E.

    (Tufts University)

  • Williams III, Roberton C.

    (Resources for the Future)

Abstract

A concern often raised about a carbon tax is that it does not provide any certainty as to the quantity of emission reductions achieved under the policy. We explore in this Issue Brief how greater emission reduction certainty can be built into a carbon tax. We first define a Tax Adjustment Mechanism for Policy Pre-Commitment (TAMPP). A TAMPP is an adjustment mechanism for the tax rate of a carbon tax to ensure that targeted emission reduction milestones are met over the next few decades. We then provide some guidance based on economic principles related to various design considerations that should be incorporated in a cost-effective and politically realistic TAMPP.

Suggested Citation

  • Hafstead, Marc & Metcalf, Gilbert E. & Williams III, Roberton C., 2016. "Adding Quantity Certainty to a Carbon Tax: The Role of a Tax Adjustment Mechanism for Policy Pre-Commitment," RFF Working Paper Series dp-16-43, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-16-43
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-16-43.pdf
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    Citations

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    Cited by:

    1. Alexander R. Barron & Allen A. Fawcett & Marc A. C. Hafstead & James R. Mcfarland & Adele C. Morris, 2018. "Policy Insights From The Emf 32 Study On U.S. Carbon Tax Scenarios," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-47, February.
    2. Gorbach, O.G. & Kost, C. & Pickett, C., 2022. "Review of internal carbon pricing and the development of a decision process for the identification of promising Internal Pricing Methods for an Organisation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    3. Robert N. Stavins, 2020. "The Future of US Carbon-Pricing Policy," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 1(1), pages 8-64.
    4. Rafaty, R. & Dolphin, G. & Pretis, F., 2020. "Carbon pricing and the elasticity of CO2 emissions," Cambridge Working Papers in Economics 20116, Faculty of Economics, University of Cambridge.
    5. Stavins, Robert N., 2019. "The Future of U.S. Carbon-Pricing Policy: Normative Assessment and Positive Prognosis," Working Paper Series rwp19-017, Harvard University, John F. Kennedy School of Government.
    6. Aldy, Joseph, 2017. "Designing and Updating a US Carbon Tax in an Uncertain World," Working Paper Series rwp17-001, Harvard University, John F. Kennedy School of Government.
    7. Boyce, James K., 2018. "Carbon Pricing: Effectiveness and Equity," Ecological Economics, Elsevier, vol. 150(C), pages 52-61.

    More about this item

    Keywords

    carbon tax; emissions uncertainty; climate;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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