Advertisement

Cap-and-trade or carbon taxes? The feasibility of enforcement and the effects of non-compliance

  • Jon HoviEmail author
  • Bjart Holtsmark
Original paper

Abstract

One of the proposed alternatives to Kyoto’s cap-and-trade approach is a regime based on an internationally harmonized carbon tax. In this paper, we consider and compare the enforcement problems associated with a tax regime and a cap-and-trade regime, respectively. The paper tries to convey two main points. First, both types of regime require an. effective enforcement mechanism. However, such a mechanism is unlikely to be adopted as part of a regime with full participation, because the political process leading up to its adoption tends to water down the enforcement mechanism to a point where it no longer has much bite. And even if this is somehow avoided, countries expecting compliance to be difficult or costly will almost certainly decline to sign—not to mention ratify—the resulting agreement. Second, the implications of non-compliance in a tax regime differ in important ways from the corresponding implications in a cap-and-trade regime. In a cap-and-trade regime emissions trading can make inaction legitimate for buyers of emission permits. In particular, overselling of permits by one (or a few) permit exporting countries might completely undermine the regime’s environmental effect. In a tax regime, by contrast, one country’s non-compliance can not make inaction by other countries legitimate. It follows that an agreement based on a harmonized carbon tax will always have some effect, provided that at least one country complies.

Keywords

Climate regime Kyoto Protocol Carbon taxes Enforcement Compliance Political feasibility 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Aldy, J. E., Barrett, S., & Stavins, R. N. (2003). Thirteen plus one: A comparison of global climate policy architectures. Climate Policy, 3, 373–397.CrossRefGoogle Scholar
  2. Barrett, S. (2002). Towards a better climate treaty. World Economics, 3(2), 35–45.Google Scholar
  3. Barrett, S. (2003). Environment & statecraft. The strategy of environmental treaty-making. New York: Oxford University Press.Google Scholar
  4. Brown W., E., & Jacobsson, H. (1998). Engaging countries: Strengthening compliance with international environmental accords. Cambridge, MA: The MIT Press.Google Scholar
  5. Böhringer, C. (2002). Climate politics from Kyoto to Bonn: From little to nothing? The Energy Journal, 23(2), 51–72.Google Scholar
  6. Chayes, A., & Ha Chayes, A. (1993). On compliance. International Organization, 47(2), 175–205.Google Scholar
  7. Chayes, A., & Handler Chayes, A. (1995). The new sovereignty compliance with international regulatory agreements. Cambridge, MA: Harvard University Press.Google Scholar
  8. Cooper, R. (1998). Toward a real treaty on global warming. Foreign Affairs, 77(2), 66–79.Google Scholar
  9. Downs, G. W., Rocke, D. M., & Barsoom, P. N. (1996). Is the good news about compliance good news about cooperation? International Organization, 50(3), 379–406.CrossRefGoogle Scholar
  10. Eizenstat, S. (1998). Stick with Kyoto: A sound start on global warming. Foreign Affairs, 77(3).Google Scholar
  11. Grubb, M. (2003). The economics of the Kyoto protocol. World Economics, 4(3), 157–189.Google Scholar
  12. Hagem, C., & Holtsmark, B. (2001). From small to insignificant: Climate impact of the Kyoto protocol with and without the US. CICERO policy note 2001:1.Google Scholar
  13. Haites, E., & Missfeldt, F. (2004). Liquidity implications of a commitment period reserve at national and global levels. Energy Economics, 26, 845–868.CrossRefGoogle Scholar
  14. Hansen, J. (March 2004). Defusing the global warming time bomb. Scientific American, 68–77.Google Scholar
  15. Hansen, J. (2005). A slippery slope: How much global warming constitutes “Dangerous Anthropogenic Interference’’? Climatic Change, 68, 269–279.CrossRefGoogle Scholar
  16. Hansen, J., & Nazarenko, L. (2004). Good climate forcing via snow and ice albedos. Proceedings of the National Academy of Sciences of the United States of America, 101(2), 423–428.CrossRefGoogle Scholar
  17. Hassellknippe, H., & Christiansen, A. C. (2003). Energy taxation in Europe: Current status, driving forces and finite prospects. Oslo:FNLGoogle Scholar
  18. Hoel, M., & Karp, L. (2001). Taxes and quotas for a stock pollutant with multiplicative uncertainty. Journal of Public Economics, 82, 91–114.CrossRefGoogle Scholar
  19. Hoel, M., & Karp, L. (2002). Taxes versus quotas for a stock pollutant. Resource and Energy Economics, 24(4), 367–384.CrossRefGoogle Scholar
  20. Hovi, J., Skodvin, T., & Andresen, S. (2003). The persistence of the Kyoto protocol: Why other annex I countries move on without the United States. Global Environmental Politics, 3(4), 1–23.CrossRefGoogle Scholar
  21. Kopp, R. (1999). Climate talk: regulating with prices or quantities—carbon taxes vs. permits. Oxford Energy Forum, Issue 38 (august 1999).Google Scholar
  22. Mastrandrea, M. D., & Schneider, S. H. (2004). Probabilistic integrated assessment of “Dangerous Climate Change’’. Science, 304, 571–575.CrossRefGoogle Scholar
  23. Missfeldt, F., & Haites, E. (2002). Analysis of a commitment period reserve at national and global levels. Climate Policy, 2(1), 51–70.CrossRefGoogle Scholar
  24. Nordhaus, W. D. (2001). After Kyoto: Alternative mechanisms to control global warming. Paper prepared for a joint session of the American Economic Association and the Association of Environmental and Resource Economists, Atlanta, Georgia, 4 January 2001. http://www.econ. yale.edu/∼ ∼nordhaus/homepage/PostKyoto_v4.pdf.Google Scholar
  25. Nordhaus, W. D., & Boyer J. G. (2001). Requiem for Kyoto: an economic analysis of the Kyoto protocol. The Energy journal, 22(Kyoto Special Issue), 93–129.Google Scholar
  26. O’Neill, B. C., & Oppenheimer, M. (2002). Dangerous climate impacts and the Kyoto protocol. Science, 296, 1971–1972.CrossRefGoogle Scholar
  27. Pizer, W. A. (1999). Choosing price or quantity controls for greenhouse gases. Resources for the future: Climate Issues Brief 99–17. http://www.rff.org/Documents/RFF-CCIB-17.pdf.Google Scholar
  28. Tallberg, J. (2000). Supranational influence in EU enforcement: the ECJ and the principle of state liability. Journal of European Public Policy, 7, 104–121.CrossRefGoogle Scholar
  29. Victor, D. (2001). The collapse of the Kyoto protocol and the struggle to slow down global warming. Princeton, NJ: Princeton University Press.Google Scholar
  30. Weitzmann, M. (1974). Prices vs quantities. Review of Economic Studies, 41(4), 477–491.CrossRefGoogle Scholar
  31. Werksman, J. (2005). The negotiation of a compliance system for Kyoto, in: S. Olav Schram, J. Hovi, & G. Ulfstein eds., Implementing the climate regime: International compliance. London: Earthscan.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2006

Authors and Affiliations

  1. 1.Department of Political ScienceUniversity of OsloBlindernNorway
  2. 2.CICERO Center for International Climate and Environmental Research – OsloOsloNorway
  3. 3.Statistics NorwayOsloNorway

Personalised recommendations