Carbon Taxes: Many Strengths but Key Weaknesses

Roger Gordon

No 31754, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There is a consensus among economists that a carbon tax is the best approach for addressing the effects of CO2 emissions on the global climate. However, past international agreements on climate change instead specify caps on emissions (a quantity target) for each country. This paper explores several advantages of such use of quantity targets. For one, if a country were to impose a carbon tax at a rate high enough to correct for global externalities, this rate would far exceed the rate in that country’s own self-interest. The result is an incentive to make use of other domestic government policies to encourage greater emissions, undercutting the intended abatement under a carbon tax. A quantity target instead by construction caps emissions. Second, the paper argues that a quantity target can better insure that global warming remains below two degrees Celsius, given the uncertainties faced regarding the response to any given carbon tax rate. Third, the set of quantity targets set for each country can more flexibly be adjusted to ensure that most countries benefit from participating in a global accord, while still allowing efficient patterns of abatement by giving countries credit for cross-border abatement efforts.

JEL-codes: H20 H22 H3 Q54 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-ene, nep-env, nep-pke and nep-pub
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Published as Carbon Taxes: Many Strengths but Key Weaknesses , Roger Gordon. in Tax Policy and the Economy, Volume 38 , Moffitt. 2024

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