Tax-versus-trading and efficient revenue recycling as issues for greenhouse gas abatement

John Pezzey and Frank Jotzo

Journal of Environmental Economics and Management, 2012, vol. 64, issue 2, 230-236

Abstract: We give empirical welfare results for global greenhouse gas emission abatement, using the first multi-party model to include both tax-versus-trading under uncertainties, and revenue recycling. Including multiple, independent parties greatly reduces the welfare advantage of an emissions tax over emissions (permit) trading in handling abatement-cost uncertainties, from that shown by existing, single-party literature. But a previously ignored and much bigger advantage of a tax, from better handling uncertainties in business-as-usual emissions, greatly boosts the overall tax-versus-trading advantage. Yet the degree to which each mechanism is used to raise and recycle revenue efficiently by lowering distortionary taxes – rather than recycle revenue as lump sums, or not raise revenue by giving tax thresholds or free permits – may in turn dominate any tax-versus-trading advantage. Choosing the best greenhouse abatement mechanism should thus consider the issues of tax-versus-trading and efficient revenue recycling together.

Keywords: Emission pricing; Tax-versus-trading; Uncertainties; Revenue recycling; Climate policy; Global (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:64:y:2012:i:2:p:230-236

DOI: 10.1016/j.jeem.2012.02.006

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