Reducing Greenhouse Gas Emissions With a Tax or a Cap: Implications for Efficiency and Cost Effectiveness

Terry M. Dinan

National Tax Journal, 2009, vol. 62, issue 3, 535-53

Abstract: This paper compares a tax on greenhouse gas emissions with a cap-and-trade program for reducing those emissions. The comparison is made on the basis of two criteria: economic efficiency and cost effectiveness. If there were an accepted measure of the marginal benefit of reducing a ton of greenhouse gas emissions, a tax would clearly be advantageous from an efficiency perspective. Comparing the two policies on the basis of cost effectiveness is more complicated. This paper defines the characteristics of a costminimizing price path and then examines the ability of an adjustable tax and two alternative designs of a cap-and-trade program to create such a price path.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:62:y:2009:i:3:p:535-53

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