Designing and Updating a US Carbon Tax in an Uncertain World

Joseph Aldy

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: A carbon tax provides certainty about the price of emissions, but it does so in a context characterized by uncertainty about its environmental benefits, economic costs, and international relations implications. Given current knowledge, suppose that the government sets a carbon tax schedule. In the future, a higher (lower) carbon tax could be justified by the resolution of uncertainty along the following ways: climate change turns out to be worse (better) than current projections; the economic costs of a carbon tax are lower (higher) than expected; other major economies implement more (less) ambitious carbon mitigation programs. This paper describes the design of a predictable process for updating the carbon tax in light of new information. Under this "structured discretion" approach, every five years the president would recommend an adjustment to the carbon tax based on analyses by the Environmental Protection Agency, the Department of the Treasury, and the Department of State on the environmental, economic, and diplomatic dimensions of climate policy. Similar to the expedited, streamlined consideration of regulations under the Congressional Review Act and trade deals under trade promotion authority, Congress would vote up or down on the presidential recommendation for a carbon tax adjustment, without the prospect of filibuster or amendment. This process could be synchronized with the timing of updating of nationally determined contributions under the Paris Agreement in a manner to leverage greater emissions mitigation ambition by other countries in future pledging rounds. The communication of guiding information and the latest data and analysis could serve as "forward guidance" for carbon tax adjustments, akin to the Federal Reserve Board's communication strategy.

Date: 2017-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://research.hks.harvard.edu/publications/getFile.aspx?Id=1494

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp17-001

Access Statistics for this paper

More papers in Working Paper Series from Harvard University, John F. Kennedy School of Government Contact information at EDIRC.
Bibliographic data for series maintained by ().