Abstract
Carbon pricing is a critical tool for reducing emissions. Ideally, it should cover all sectors of the economy, although some regions have applied it only to specific sectors. Policymakers can either impose a cap on emissions, using a permit trading scheme to limit emissions and achieve the most cost-effective set of reductions, or impose a tax on emissions. In either case, the price of emitting greenhouse gases will increase, providing an incentive to reduce emissions.
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Notes
- 1.
Leakage occurs when emissions or economic activities shift outside an area because of the policy. Leakage to neighboring places is the greatest likelihood, because these are often the greatest trading partners, although in the era of globalization leakage is not constrained to neighboring countries or states.
- 2.
This line of analysis goes back to Martin L. Weitzman, “Prices vs. Quantities,” The Review of Economic Studies 41, no. 4 (1974): 477-91, https://doi.org/10.2307/2296698.
- 3.
Hal Berton, “Washington State Alliance to Push a Reworked Carbon-Tax Proposal,” The Seattle Times (November 12, 2016), https://www.seattletimes.com/seattle-news/environment/washington-state-alliance-to-push-a-reworked-carbon-tax-initiative/.
- 4.
Marc Hafstead, Gilbert E. Metcalf, and Roberton C. Williams III, “Adding Quantity Certainty to a Carbon Tax: The Role of a Tax Adjustment Mechanism for Policy Pre-Com mitment” (Resources for the Future, 2016), http://www.rff.org/research/publications/adding-quantity-certainty-carbon-tax-role-tax-adjustment-mechanism-policy-pre; and Brian Murray, William A. Pizer, and Christina Reichert, “Increasing Emissions Certainty under a Carbon Tax” (Duke Nicholas Institute for Environmental Policy Solutions, 2016), https://nicholasinstitute.duke.edu/sites/default/files/publications/ni-pb-16-03.pdf.
- 5.
For more reading, see “Tackling Carbon Leakage” (UK Carbon Trust; Climate Strategies, 2010), https://www.carbontrust.com/media/84908/ctc767-tackling-carbon-leakage.pdf.
- 6.
Quote from “Allocating Emissions Allowances under a California Cap-and-Trade Program” (California Economic and Allocation Advisory Committee, 2010), 13, http://www.climatechange.ca.gov/eaac/documents/eaac-reports/2010-03-22-EAAC-Allocation-Report-Final.pdf.
- 7.
Dallas Burtraw, Richard Sweeney, and Margaret Walls, “The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction” (Washington, DC: Re-sources for the Future, June 2009), http://www.rff.org/documents/RFF-DP-09-17-REV.pdf.
- 8.
For some excellent discussion, see Meredith Fowlie, “The Promise and Perils of Link-ing Carbon Markets” (Energy Institute Blog, 2016), https://energyathaas.wordpress.com/2016/07/25/the-promise-and-perils-of-linking-carbon-markets/.
- 9.
Esther Duflo et al., “Truth -Telling by Third-Party Auditors and the Response of Polluting Firms: Experimental Evidence from India,” The Quarterly Journal of Economics 128, no. 4 (November 1, 2013): 1499-1545, https://doi.org/10.1093/qje/qjt024.
- 10.
M. Jeff Hamond et al., Tax Waste, Not Work: How Changing What We Tax Can Lead to a Stronger Economy and a Cleaner Environment (San Francisco, CA: Redefining Progress, 1997).
- 11.
“State and Trends of Carbon Pricing 2017” (World Bank; Ecofys; Vivid Economics, 2017), https://openknowledge.worldbank.org/handle/10986/28510.
- 12.
Some critiques argue that this figure is much too low. The following study estimates the true value as $220 per ton: Frances C. Moore and Delavane B. Diaz, “Temperature Im-pacts on Economic Growth Warrant Stringent Mitigation Policy,” Nature Climate Change 5 (January 12, 2015): 127.
- 13.
“The Investment of RGGI Proceeds through 2014” (Regional Greenhouse Gas Initia-tive, 2016), https://www.rggi.org/docs/ProceedsReport/RGGI-Proceeds-Report-2014.pdf.
- 14.
Paul Hibbard et al., “The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States” (Analysis Group, 2015), http://www.analysisgroup.com/uploadedfiles/content/insights/publishing/analysis-group-rggi-report-july-2015.pdf.
- 15.
“Analysis of the Public Health Impacts of the Regional Greenhouse Gas Initiative, 2009-2014” (Abt Associates, 2017), http://www.abtassociates.com/AbtAssociates/files/7e/7e38e795-aba2-4756-ab72-ba7ae7f53f16.pdf.
- 16.
Michael Grubb and Federico Ferrario, “False Confidences: Forecasting Errors and Emission Caps in CO2 Trading Systems,” Climate Policy 6, no. 4 (January 1, 2006): 495-501, https://doi.org/10.1080/14693062.2006.9685615.
- 17.
“RGGI States Announce Proposed Program Changes: Additional 30% Emissions Cap Decline by 2030” (RGGI Inc., 2017), http://rggi.org/docs/ProgramReview/2017/08-23-17/Announcement-Proposed-Program-Changes.pdf.
- 18.
Ibid.
- 19.
Dallas Burtraw, “Evaluating Experience with the Cost-Containment Reserve & Ideas for the Future” (RGGI Inc., 2016), https://www.rggi.org/docs/ProgramReview/2016/04-29 -16/Burtraw-on-RGGI-CCR-April-29th.pdf.
- 20.
Chris Busch, “Oversupply Grows in the Western Climate Initiative Carbon Market” (Energy Innovation, 2017), http://energyinnovation.org/wp-content/uploads/2017/12/Oversupply-Grows-In-The-WCI-Carbon-Market.pdf.
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© 2018 Hal Harvey, Robbie Orvis, and Jeffrey Rissman
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Harvey, H., Orvis, R., Rissman, J. (2018). Carbon Pricing. In: Designing Climate Solutions. Island Press, Washington, DC. https://doi.org/10.5822/978-1-61091-957-9_14
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