Taxes, Permits, and Climate Change / Louis Kaplow.

By:

Kaplow, Louis

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w16268.Publication details: Cambridge, Mass. National Bureau of Economic Research 2010.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This essay revisits the question of instrument choice for the regulation of externalities in the context of climate change. The central point is that the Pigouvian prescription to equate marginal control costs with the expected marginal benefits of damage reduction should guide the design of both carbon taxes and permit schemes. Because expected marginal damage rises nonlinearly, a corresponding nonlinear tax - or an equivalent price implemented through a quantity-adjusted permit scheme - is second best. Also considered are political factors, distinctive features of regulating a stock pollutant, and ex ante distortions due to the anticipation of transition relief (such as by receiving more free permits for greater emissions). Finally, distributive concerns are examined, with emphasis on the conceptual and practical benefits of addressing distributive issues with the tax and transfer system rather through adjustments to regulatory schemes that usually render them less effective.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w16268 (Browse shelf(Opens below))	Not For Loan

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August 2010.

This essay revisits the question of instrument choice for the regulation of externalities in the context of climate change. The central point is that the Pigouvian prescription to equate marginal control costs with the expected marginal benefits of damage reduction should guide the design of both carbon taxes and permit schemes. Because expected marginal damage rises nonlinearly, a corresponding nonlinear tax - or an equivalent price implemented through a quantity-adjusted permit scheme - is second best. Also considered are political factors, distinctive features of regulating a stock pollutant, and ex ante distortions due to the anticipation of transition relief (such as by receiving more free permits for greater emissions). Finally, distributive concerns are examined, with emphasis on the conceptual and practical benefits of addressing distributive issues with the tax and transfer system rather through adjustments to regulatory schemes that usually render them less effective.