Tax Policy Issues in Designing a Carbon Tax

American Economic Review · 2014 · Volume 104 · Issue 5

Abstract

A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.

Keywords

Taxation and Subsidies: Externalities, Redistributive Effects, Environmental Taxes and Subsidies, Climate, Natural Disasters, Global Warming, Environmental Economics: Government Policy

Enable JavaScript for citation tools and additional paper interactions.