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Other chapters of this Handbook show that environmental taxes are very interesting instruments for environmental regulation. The question addressed in this chapter is whether they are still interesting when the environmental problem is a global one. Are they still effective and efficient? Are they feasible and acceptable? First, however, a few definitions are needed: what are global environmental problems and how could taxes help address them?

State and local governments in the United States are evaluating a wide range of policies to reduce carbon emissions, including, in some instances, carbon taxes, which have existed internationally for nearly 20 years. This report reviews existing carbon tax policies both internationally and in the United States. It also analyzes carbon policy design and effectiveness. Design considerations include which sectors to tax, where to set the tax rate, how to use tax revenues, what the impact will be on consumers, and how to ensure emissions reduction goals are achieved. Emission reductions that are due to carbon taxes can be difficult to measure, though some jurisdictions have quantified reductions in overall emissions and other jurisdictions have examined impacts that are due to programs funded by carbon tax revenues.

Over the last few decades, several instruments have evolved to deal with similar energy and environmental challenges. For instance, the economic literature prescribes separate tax or cap-and-trade systems to internalize negative environmental externalities and subsidies to internalize positive externalities such as research and development. However, policy is not straightforward because of the influence on cost and competition and concerns for regional employment, economic activity within certain industries and any distributional effects. Tax discrimination, subsidies and regulations then undermine the efficiency of energy instruments. To balance any environmental concerns, other instruments, including green and white certificates, have been created. While innovative, these work as simple combinations of taxes and subsidies. While the extant literature thoroughly analyzes the partial effects of these instruments, there has been little focus on their basics and the effects of aggregate taxes and subsidies. This complexity calls for research on the efficiency of each instrument, including the administration and transaction costs associated with holding a large set of instruments. We should consider the coordination and simplification of policy tools before complicating the system further by introducing new, primarily equivalent, instruments.

Author(s): Dotson, Greg | Abstract: Many aspects of carbon taxes have been studied in the academic literature. This paper focuses on an area that has received insufficient attention by examining some of the specific institutional challenges a carbon tax proposal would face in Congress. A relatively unknown recent debate in the House of Representatives over a resolution to denounce the concept of carbon taxes provides a window into these challenges, demonstrating the arguments and tactics that can impede solution-oriented action to address climate change. Developing a policy that responds to these arguments is likely to add complexity to a carbon tax proposal, to increase the number of congressional committees involved in consideration of the proposal, and to create additional demand for the revenue that a proposed carbon tax would generate. Moreover, opponents of a policy can exploit these complicating factors and the lengthy time needed in Congress to consider legislation, so they can preemptively attack emerging concepts and proposals. The paper concludes by arguing that enacting a carbon tax at the federal level, with the policy elements that are often contemplated, will require a great deal of agreement or complaisance among lawmakers. Understanding this challenge well in advance of the opportunity for congressional consideration of a carbon tax will best prepare carbon tax advocates for a successful outcome.

In order to better understand the political feasibility of different carbon taxes and different ways of using the revenue generated by a carbon tax, this paper extends an existing general-equilibrium model (Goulder and Hafstead, 2013) to generate estimates of the percentage of households that are economically benefited by such policies. It then adjusts these estimates to account for the different turnout rates among income groups, with higher-income individuals being much more likely to vote than lower-income individuals. The effects of each policy on relevant attributes (consumption, leisure, income) of each household are also analyzed. This analysis finds that lump sum transfers are the revenue recycling method likely to benefit the largest percentage of the American population (for carbon taxes above $5-$15/metric ton) and that the percentage of households benefited by a carbon taxation policy decreases as the carbon tax increases. Additionally, the paper finds that not adjusting for voter turnout rates leads to significant over-estimates in the maximum carbon tax that a majority of voters would support.

The postponement of 2012 VAT Law implementation means that the higher tax revenues expected from the measure will be delayed, and additional sources of revenue need to be considered. Model simulations suggest that implementation of the VAT Law starting July 1, 2017 at the originally proposed rate of 15 percent would have yielded additional tax revenue of about 1 percent of GDP in FY2018, and 0.8 percent of GDP in FY2019. Several measures could be considered to make up this short-fall. Automation and process simplification could bring additional tax revenues ranging from 0.3 to 0.7 percent of GDP in FY2018. There is substantial scope for efficiency gains in shifting from a type-of-tax towards a function-based tax administration, facilitating compliance. Carbon taxes could generate resources equivalent to 1 percent of GDP, and tobacco taxes could raise a further 1 to 2 percent of GDP. Rationalizing tax incentives and exemptions can also generate more revenue. The proposed administrative measures, including expanding tax withholding mechanisms, would not require legislative changes and could be implemented in the short term, boosting revenue during the current fiscal year (FY2018). The other tax policy measures could be considered for implementation in the medium term and would require corresponding legislative initiatives.

This paper employs analytical and numerical general equilibrium models to assess the efficiency impacts of two policies to reduce U.S. carbon emissions - a revenue-neutral carbon tax and a non-auctioned carbon quota - taking into account the interactions between these policies and pre-existing tax distortions in factor markets. We show that tax interactions significantly raise the costs of both policies relative to what they would be in a first-best setting. In addition, we show that these interactions put the carbon quota at a significant efficiency disadvantage relative to the carbon tax: for example, the costs of reducing emissions by 10 percent are more than three times as high under the carbon quota as under the carbon tax. This disadvantage reflects the inability of the quota policy to generate revenue that can be used to reduce pre-existing distortionary taxes. Indeed, second-best considerations can limit the potential of a carbon quota to generate overall efficiency gains. Under our central values for parameters, a non-auctioned carbon quota (or set of grandfathered carbon emissions permits) cannot increase efficiency unless the marginal benefits from avoided future climate change are at least $17.8 per ton of carbon abatement. Most estimates of marginal environmental benefits are below this level. Thus, our analysis suggests that any carbon abatement by way of a non-auctioned quota will reduce efficiency. In contrast, our analysis indicates that a revenue-neutral carbon tax can be efficiency-improving so long as marginal environmental benefits are positive.

Abstract In the presence of intersectoral linkages, sector-specific carbon tax changes can have complex general equilibrium effects. In particular, a carbon tax on the emissions of a sector can lead to an increase in aggregate emissions. We analytically characterise how incremental taxes on the emissions of any set of sectors affect aggregate emissions. We show that carbon tax reforms that target sectors based on their position in the production network can achieve a greater reduction in aggregate emissions than reforms that target sectors based on their direct emissions alone. We illustrate the effects of carbon tax reforms by calibrating our intersectoral network model to the economies of two countries.