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Carbon Taxes vs. Cap and Trade: A Critical Review

Lawrence H. Goulder and Andrew Schein

No 19338, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the relative attractions of a carbon tax, a "pure" cap-and-trade system, and a "hybrid" option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts. Several of these dimensions have received little attention in prior literature. A key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of attractions over pure cap and trade. Beyond helping prevent price volatility and reducing expected policy errors in the face of uncertainties, exogenous pricing helps avoid problematic interactions with other climate policies and helps avoid large wealth transfers to oil exporting countries.

JEL-codes: H23 Q50 Q54 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-ene, nep-env, nep-pub, nep-reg and nep-res
Note: EEE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Published as LAWRENCE H. GOULDER and ANDREW R. SCHEIN, Clim. Change Econ. 04, 1350010 (2013)

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