A Tax-Based Approach to Slowing Global Climate Change

37 Pages Posted: 20 Aug 2008 Last revised: 12 May 2013

See all articles by Joseph E. Aldy

Joseph E. Aldy

Harvard Kennedy School; National Bureau of Economic Research; Resources for the Future; Harvard University - Harvard Kennedy School (HKS)

Eduardo Ley

World Bank

Ian W. H. Parry

Resources for the Future

Date Written: July 15, 2008

Abstract

In this paper, we discuss the design of carbon dioxide (CO2) taxes at the domestic and international level and the choice of taxes versus a cap-and-trade system. A strong case can be made for taxes on uncertainty, fiscal, and distributional grounds, though this critically hinges on policy specifics and how revenues are used. The efficient near-term tax is at least $5-$20 per ton of CO2 and the tax should be imposed upstream with incentives for downstream sequestration and abatement of other greenhouse gases. At the international level, a key challenge is the possibility that emissions taxes might be undermined through offsetting changes in other energy policies.

Keywords: global climate change, CO2 tax, cap-and-trade, policy design

JEL Classification: Q54, Q58, H23

Suggested Citation

Aldy, Joseph E. and Ley, Eduardo and Parry, Ian W. H., A Tax-Based Approach to Slowing Global Climate Change (July 15, 2008). RFF Discussion Paper 08-26, Available at SSRN: https://ssrn.com/abstract=1238943 or http://dx.doi.org/10.2139/ssrn.1238943

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

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National Bureau of Economic Research

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Resources for the Future

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Eduardo Ley

World Bank ( email )

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Ian W. H. Parry

Resources for the Future ( email )

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HOME PAGE: http://www.rff.org/~parry

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