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A sufficiently high carbon tax will reduce near-term carbon emissions compared with the case of no tax. For lower tax rates that increase faster than some threshold that is at least as high as the rate of interest, near-term emissions may be higher compared with the case of no carbon tax. Even so, such a carbon tax path may reduce total costs related to climate change, since the tax may reduce total carbon extraction. A government cannot commit to a specific carbon tax rate in the distant future. For reasonable assumptions about expectation formation, a higher present carbon tax will reduce near-term carbon emissions. However, if the near-term tax rate for some reason is set below its optimal level, increased concern for the climate may change taxes in a manner that increases near-term emissions.

This chapter estimates the welfare costs of the main medium‐term options for significantly reducing US energy‐related carbon dioxide (CO₂) emissions, including carbon taxes and cap‐and‐trade systems applied economy‐wide and to the power sector only, and an emissions rate standard for power generation. The key theme is that welfare costs depend importantly on how policies interact with distortions in the economy created by the broader fiscal system. Economy‐wide cap‐and‐trade systems, or carbon taxes, where allowance rent or tax revenue is not used to increase economic efficiency, perform the worst on cost‐effectiveness grounds. In contrast, the costs of economy‐wide carbon taxes or auctioned allowance systems may be (slightly) negative, if revenues are used to substitute for distortionary income taxes (either directly, or indirectly through deficit reduction). The bottom line is that revenue/rents created under economy‐wide, market‐based carbon policies must be used to increase economic efficiency to ensure that these instruments are more cost‐effective than regulatory or sectoral approaches.

Design of environmental taxes are picked up as an argument of whether or not environmental taxes should be practically introduced into the Japanese tax system, since it is still immature. It is necessary to investigate the background of environmental issues and protection in the past, and possible way of designing a desirable form of environmental taxes, such as a carbon/ energy tax.

How could we move closer to achieving global justice? In chapters 5 through 9 the case against the feasibility skeptic builds, as we see that there is much we can do that would constitute real progress toward global justice. This chapter discusses global poverty, global public goods, and taxation reform. At least 25% of the world's population is currently unable to meet their basic needs. Our neglect of various global public goods means that this situation is likely to deteriorate in the future. The chapter discusses how we can make genuine progress with respect to global poverty and the protection of global public goods by presenting considerations in favor of major taxation and accounting reform, which would enable developing countries better to help themselves. The chapter includes critical discussion of some well‐known taxes such as Thomas Pogge's Global Resource Tax, a Carbon Tax, and the Tobin Tax.

The chapter puts carbon‐energy taxation and ETR in the context of the EU Emissions Trading Scheme (EU ETS), which has been operational since 2005. It describes the basic principles behind emissions trading and discusses the effects on competitiveness which have been estimated from the scheme, both as it is now and how it might develop to 2020. Many of the issues and effects are similar to those discussed elsewhere in the book in relation to ETR. The chapter then moves on to the interaction between taxes and trading, both in theory and as they exist in practice in the European Union. There are a number of good reasons why carbon‐energy taxation should be combined with the EU ETS, especially before the EU ETS moves to the full auctioning of quotas. However, the requirement for unanimity among EU member states on proposals for taxation at the EU level means that, notwithstanding the potential benefits, it will not be easy for new EU carbon‐energy taxes to be introduced.

The pricing of carbon emissions is considered to be an effective instrument to curb greenhouse gas emissions. This chapter focuses on carbon tax that consists of an additional cost levied on energy purchases. This additional cost is based on the amount of carbon dioxide discharged on consumption and the tax is believed to generate financial incentives for businesses as well as individuals to lower their dependence on carbon-intensive fuels and thus demand energy-efficient technologies and an alternative energy source. British Columbia received the lowest support from its residents for this tax. Furthermore, the chapter analyzes how the carbon tax failed to address the environmental concern of sacrifice.

The risks of climate change resulting from the increase in the atmospheric concentration of greenhouse gases have been well documented. There is a global consensus that strong actions need to be taken to ensure that the world does not face excessive risk from an increase in the atmospheric concentration of greenhouse gases. This chapter is concerned with how the global community should respond to this global risk and, in particular, how the burden of preventing global warming should be shared, especially between developed and less-developed countries. Standard public finance theory provides clear guidance about how to achieve such reductions in the most efficient way and how the burden should be shared. Clearly, the brunt of the burden (under virtually any welfare criterion) should lie with the advanced industrial countries. The chapter concludes that a carbon tax may be the best way of avoiding the impasse confronting the world in addressing climate change.

This chapter presents the simulation results for five increasingly aggressive carbon tax regimes covering all greenhouse gas emissions. Major fiscal reform is viewed from a tax perspective involving capital tax reductions, labor tax reductions, their combination or lump-sum redistribution. The economy differs markedly across the four fiscal treatments but emissions reductions do not. Macroeconomic and industry impacts are described in detail. For the economy, the benefits of capital tax recycling outweigh the costs of carbon taxation; this reverses for the labor and lump-sum alternatives. Price-induced technical change is shown to be a net positive force for growth. Welfare effects are described demographically for individual households and in the aggregate. Social welfare is decomposed into efficiency and equity effects and is viewed from an egalitarian or utilitarian perspective. Labor tax reductions are welfare inferior despite their unqualified progressivity and are not necessarily superior to lump-sum redistribution at either the household or societal levels. Capital tax reductions, the book's titular double dividend, are welfare superior despite their qualified regressivity.

This chapter describes the modelling of an ETR for Europe, using the models described in Chapter 8. The chapter starts by describing the role of the baseline in the analysis and why it is important to choose an appropriate baseline. It then describes the main scenarios undertaken, with a discussion of the taxes implemented and the relationship between the EU ETS and the carbon tax applied to the rest of the economy, the role of revenue recycling in the different scenarios, and spending of some of the tax revenues on eco-innovation. The major part of the chapter describes the results of the modelling, including: aggregate energy/environment results (i.e. reduction in emissions and energy demand); aggregate economic results; sectoral energy/environment results; sectoral economic results.

Implementing environmental policies — through standards, tradable permits, or environmental taxes alike — is far from costless. For instance, when implementing an environmental tax, the tax department has to run a special unit to enforce and collect taxes and to monitor compliance. In practice, the costs of implementing environmental policies play a significant role in the choice between policy options. This chapter investigates the potential trade-off between administrative costs and incentives of environmental regulation, in particular if the government aims to reduce carbon dioxide emissions. It analyzes how the optimal choice of carbon taxes is affected by the administrative costs incurred by the regulator (government). Using a simple model, the chapter determines the optimal rates for emissions and input taxes in the presence of administrative costs and which of these taxes should optimally be introduced. It also explores and interprets the scarce empirical evidence on administrative costs of taxation in the light of optimal carbon taxation. Finally, it evaluates both explicit and implicit carbon taxation in OECD countries in terms of the trade-off and suggests some opportunities for welfare-improving carbon tax policies.

This chapter explores the distributional impacts of various CO₂ abatement policies in the United States in terms of their impacts on profits and equity values for the industries supplying fossil fuels (the coal industry and crude petroleum and natural gas industry) and the industries that rely heavily on fossil fuels as intermediate inputs (for example, petroleum refining and electric utilities). It examines a range of abatement policies, including policies designed to avoid adverse consequences for the regulated industries. It shows that some of the adverse consequences can be avoided through industry-specific corporate tax cuts, direct transfers, and the government's free provision (or “grandfathering”) of emissions permits to firms. The government has to grandfather only a small fraction of tradable pollution permits or exempt a small fraction of inframarginal emissions from a carbon tax to protect the value of capital in industries that are especially vulnerable to impacts from carbon taxes.

This chapter examines potential environmental tax policy reforms. It focuses primarily on a carbon tax but also more briefly considers a range of other possible changes and green taxes. These include revising or eliminating various energy and environmental tax credits and deductions (many of which might become unnecessary in the presence of a carbon tax), as well as changes to energy taxes that have substantial environmental implications (such as the federal gasoline tax). The chapter draws on recent theoretical and empirical research to evaluate the effects of such reforms on tax revenue, pollution emissions pricing, economic efficiency, and income distribution.

This chapter outlines an economist's perspective, a smart energy policy. Major technological advances are going to be necessary if we are to substantially alter the current energy mix. To achieve these advances, the right prices for energy should be obtained, which means adopting an oil security tax and a carbon tax. This alternative offers a radical departure from current policies. To gain traction with the general electorate, congressional leaders must be able to explain in simple terms why getting the prices right is both a simple and a smart energy policy. Once the policies have been adopted, policymakers must then be patient, resisting the temptation to react to each new hurricane or upheaval in the Middle East. They must recognize that markets have been phenomenal providers of new energy technologies and will, given time and the right prices, obtain the desired balance between cheap, clean, and secure energy.

This chapter uses game theoretic models to examine scope for international cooperation for reducing CO₂ emissions. Though the collective benefits of reduced emissions may be significant, it is in no country's self-interest to make significant sacrifices through a reduction in emissions. In the absence of cooperation, the total quantity of emissions will be in excess of the social optimum, that allocation of emissions which maximizes the total income of all countries minus the environmental costs. However, not all kinds of international agreements lead to a social optimum. A more common type of agreement is one where all countries are required to make uniform percentage reduction in emissions. The cost difference between these two types of agreements may be quite large. This chapter explores two other types of environmental agreements, namely, an international CO₂ tax and tradable CO₂ permits. Disregarding the size of a country, it is seen that both of these systems are equivalent. With a CO₂ tax, setting the tax level can be an issue and it may take a few iterations to reach the desired level of tax.

Since 1988, Japan and Britain have responded to the common threat of global warming. Both countries voluntarily established a policy to tackle the problem before the adoption of the United Nations Framework Convention on Climate Change. Once it was established, they developed and implemented policies and measures to meet its requirements as well as the goals they set for themselves. The picture that emerges from the present detailed examination of climate policy in Japan and Britain is a mixture of policy similarities and differences. This chapter compares, contrasts, and analyses Japanese and British global warming policy, focusing on the speed of policy change, policy contents including instruments employed, the degree of policy integration, and policy stringency. It then considers two questions: What is the effect of corporatist institutions on a country's ability to tackle challenges to sustainable development? What are the interactions between the institutional and issue-based approaches? The chapter also discusses Britain's measures for reducing carbon dioxide emissions, the politics of carbon tax, consensus corporatism and majoritarian pluralism, and the institutional approach vs. the issue-based approach.

Any path of positive, global climate taxes will, under realistic assumptions, reduce cumulative long-run emissions, that is, there is no very strong Green Paradox. A tax may, however, increase short-run emissions. The quantitative question whether initial increases or long-run reductions dominate the tax induced change of the relevant net present value of damages, is addressed in two ways. First, it is shown analytically that if a carbon tax is not seen as the only potential climate preservation measure – as independent additional political or technological developments in the future may play a role as well –, a strong Green Paradox may be much less likely than if the tax is assessed in isolation of other developments. Second, dynamic numerical simulations show that the structure of the extraction costs for the existing fossil fuel reserves makes the strong Green Paradox unlikely, even without future alternative measures and with high emission discount rates.

One of the most intractable contemporary policy challenges facing the world is mitigating anthropogenic (i.e., human-caused) climate change, which has the potential to cause disastrous consequences for large swaths of humanity. However, climate change by definition is a global problem, so that unilateral action to reduce, e.g., CO2 emissions is unlikely to be effective without other major emitting-source countries making similar commitments. Indeed, unilateral action may simply induce expansion of CO2 emitting activities in unconstrained countries or the relocation of firms from countries adopting such measures to countries with no such constraints. The transition costs within given countries in moving to a lower carbon future are severe and the transition costs across countries, especially developed and developing, are equally intractable, as evident from the relative lack of progress in achieving binding commitments in international fora over the past 20 years. Normative arguments for how to allocate the burden of reducing CO2 emissions are a major source of conflict, with developed countries pointing out that major developing countries like China and India are now major sources of CO2, while developing countries argue that developed countries have been historically responsible for creating most of the problems we confront today and are in any event better placed to bear a larger burden of abatement measures than poorer developing countries. This chapter explores a range of transition cost mitigation strategies, both within countries and across countries, that might facilitate progress on this issue.

A carbon tax would burden emissions of carbon dioxide and other greenhouse gases that arise from the burning of coal, oil, and natural gas. When they are released in the atmosphere, these gases raise global temperatures and pollute in ways that threaten the environment and people’s livelihoods. Currently, businesses and people don’t need to consider how their decisions on what to make and what to buy will increase pollution and contribute to climate change because they don’t bear the full cost of their actions. A properly designed tax would make producers and consumers face those costs by raising energy prices, prompting them to use less, more efficient, and/or cleaner energy sources, which, in turn, would reduce emissions. For these reasons, the carbon tax is routinely considered an auspicious way to address global warming and would be an effective part of a package to resolve the long-term fiscal problem.