Taxes, permits, and climate change

Description

"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"--John M. Olin Center for Law, Economics, and Business web site.

Subjects

Series Statement

• Discussion paper -- no. 675
• Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 675.

Links

• http://www.law.harvard.edu/programs/olin%5Fcenter/papers/675%5FKaplow.php

Other Editions

• Taxes, permits, and climate changeElectronic resourceHarvard Law School2010-01-01
• Taxes, permits, and climate changeElectronic resourceNational Bureau of Economic Research2010-01-01