On the Choice of Tax Base to Reduce Greenhouse Gas Emissions in the Context of Electricity Generation

Robert Fraser

No 139729, 2006 Conference (50th), February 8-10, 2006, Sydney, Australia from Australian Agricultural and Resource Economics Society

Abstract: This paper analyses the role of uncertain demand in determining the government’s choice between an ad valorem and a specific base for its tax to reduce greenhouse gas emissions in the electricity generating sector. Using a model of optimal capacity choice for a pricetaking firm facing demand uncertainty it is shown that an ad valorem tax is more effective in reducing emissions than its equivalent specific tax, although this benefit comes at the cost of lower reliability of electricity supply. A numerical analysis provides a robust finding that the ad valorem tax is expected to generate greater tax revenue, thereby providing support for the choice of this tax base in situations where the extra tax revenue can be used to compensate consumers for reduced reliability of supply.

Keywords: Demand and Price Analysis; Environmental Economics and Policy (search for similar items in EconPapers)
Pages: 22
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare06:139729

DOI: 10.22004/ag.econ.139729

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