Tax Policies for Low-Carbon Technologies
The U.S. tax code provides a number of subsidies for low-carbon technologies. I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities. In particular, subsidies lower the cost of energy (on average) rather than raising it. Thus consumer demand responses work at cross purposed to the goal of reducing emissions (especially as average cost pricing is used for electricity). Second, it is difficult to achieve technology neutrality with subsidies-here defined as an equal subsidy cost per ton of CO2 avoided. Third, many subsidies are inframarginal. Finally, subsidies often suffer from unintended interactions with other policies. I conclude with some observations on the use of price-based instruments. In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.
|Date of creation:||2009|
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- Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel, 2009.
"Greenhouse Gas Reductions under Low Carbon Fuel Standards?,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 1(1), pages 106-46, February.
- Stephen P. Holland & Christopher R. Knittel & Jonathan E. Hughes, 2007. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," NBER Working Papers 13266, National Bureau of Economic Research, Inc.
- Holland, Stephen P. & Knittel, Christopher R & Hughes, Jonathan E., 2008. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," Institute of Transportation Studies, Working Paper Series qt9gh5b4rv, Institute of Transportation Studies, UC Davis.
- Holland, Stephen P & Knittel, Christopher R & Hughes, Jonathan E., 2008. "Greenhouse Gas Reductions under Low Carbon Fuel Standards?," Institute of Transportation Studies, Working Paper Series qt0177r7xp, Institute of Transportation Studies, UC Davis.
- Gilbert E. Metcalf, 2006.
"Federal Tax Policy Towards Energy,"
Discussion Papers Series, Department of Economics, Tufts University
0612, Department of Economics, Tufts University.
- Lucas W. Davis & Matthew E. Kahn, 2008. "International Trade in Used Durable Goods: The Environmental Consequences of NAFTA," NBER Working Papers 14565, National Bureau of Economic Research, Inc.
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