Carbon Tax Review and Updating: Institutionalizing an Act-Learn-Act Approach to U.S. Climate Policy

Joseph E. Aldy

Review of Environmental Economics and Policy, 2020, vol. 14, issue 1, 76 - 94

Abstract: The design of climate change policy must address a number of key uncertainties, including the impacts of climate change, the economics of a carbon tax, and the global effort to combat climate change. A periodic review of each of these issues would provide new information and analysis that could be used to reduce uncertainty and inform the updating of a carbon tax over time. This article proposes and describes a straightforward and predictable approach for reviewing and updating a U.S. carbon tax. Under this “structured discretion” approach, the U.S. president would recommend an update to the carbon tax every 5 years, which would be based on government agency reviews of the environmental, economic, and multilateral conditions related to climate change. Following a process that is modeled after the expedited consideration of trade agreements, the U.S. Congress would agree to vote on the recommended carbon tax update. This process could also be coordinated with the timing of the emission mitigation pledging rounds under the 2015 Paris Climate Agreement. I suggest that the institutionalization of such an act-learn-act approach to carbon tax design could improve the political viability of a carbon tax and promote its adaptability to changing environmental, economic, and multilateral conditions, which would likely increase net social welfare over time.

Date: 2020
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