• Energy Research
• 7. Clean energy close

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.

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.

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.

In this paper we investigate the optimal taxation of CO2 and its co-pollutants. While CO2 is a uniformly mixed stock pollutant, important CO2 co-pollutants like SO2, PM2.5 and PM10 are flow pollutants with spatially differentiated damages. Recent proposals have called for CO2 control that accounts for its effects on emissions of its co-pollutants, which implies that optimal CO2 taxes would have a spatial component. However we demonstrate that setting a CO2 tax that varies from its marginal damage is justified only if co-pollutants are regulated inefficiently. We demonstrate that the optimal CO2 tax deviates from the CO2 marginal damage across sources depending on the source-specific co-pollutant marginal damage, the level of inefficiency in the co-pollutant regulation, and the abatement cost interaction of the two pollutants. An alternative to adjusting CO2 policy to account for the inefficient regulation of a co-pollutant is to address the inefficiency directly by modifying the regulation of the co-pollutant. Since this approach is more efficient in general, we quantify the expected reduction in social costs from this regulation relative to adjusting CO2 taxes. With a simulation of CO2 and SO2 control from the U.S. power sector, we find that setting efficient taxes for both CO2 and SO2 provides a welfare gain that is likely to be many orders of magnitude greater than the gain from adjusting CO2 taxes to account for the inefficient regulation of SO2.

Industry plays a very important role in India economic growth. India currently became the third highest emission producer in the world. According its Nationally Determined Contribution on Paris Agreement, India committed to reduce emission intensity of its GDP by 35% by 2030 from 2005 level. Using Global Trade Analysis Project ��� Energy (GTAP-E) model simulation, this paper attempts to provide an estimation of industrial changes in India due to its pledge on Paris Agreement. The result indicate that some industries have an increase and decrease on their production even though the tax raises.

The current pricing mechanism for carbon in the EU, the EU emissions trading system, only covers 40 percent of emissions. Carbon taxation currently plays no role. The Commission has recently proposed to revise the energy tax system in the EU to include a carbon tax component. This paper evaluates the Commission proposal and considers the possible expansion of the EU carbon pricing base either by expanding emissions trading to cover more sectors or by enacting a carbon tax. It concludes that there are strong arguments for expanding the carbon pricing base, as suggested by the Commission. Nevertheless, expanding the base should done through a unified system, such as expanding the coverage of the emissions trading system or enacting an economywide carbon tax rather than through having side-by-side taxes and trading, as in the Commission proposal.