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Carbon Taxes: Many Strengths but Key Weaknesses

In: Tax Policy and the Economy, Volume 38

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  • Roger Gordon
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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Roger Gordon, 2023. "Carbon Taxes: Many Strengths but Key Weaknesses," NBER Chapters, in: Tax Policy and the Economy, Volume 38, pages 1-24, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:14908
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    1. Laurence Kotlikoff & Felix Kubler & Andrey Polbin & Jeffrey Sachs & Simon Scheidegger, 2021. "Making Carbon Taxation A Generational Win Win," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 3-46, February.
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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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