The U.S. Congress is considering a set of bills designed to limit the nation's greenhouse gas (GHG) emissions. This paper complements the analysis by Paltsev et al. (2007) of cap-and-trade bills and applies the MIT Emissions Prediction and Policy Analysis (EPPA) model to carry out an analysis of the tax proposals. Several lessons emerge from this analysis. First, a low starting tax rate combined with a low rate of growth in the tax rate will not reduce emissions significantly. Second, the costs of GHG reductions are reduced with the inclusion of non-CO2 gases in the carbon tax scheme. Third, welfare costs of the policies can be affected by the rate of growth of the tax, even after controlling for cumulative emissions. Fourth, a carbon tax -- like any form of carbon pricing -- is regressive. However, general equilibrium considerations suggest that the short-run measured regressivity may be overstated. Additionally, the regressivity can be offset with a carefully designed rebate of some or all of the revenue. Finally, the carbon tax bills that have been proposed or submitted are for the most part comparable to many of the carbon cap-and-trade proposals that have been suggested. Thus the choice between a carbon tax and cap-and-trade system can be made on the basis of considerations other than their effectiveness at reducing emissions over some control period.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13980.
Length: Date of creation: May 2008 Date of revision: Handle: RePEc:nbr:nberwo:13980
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Find related papers by JEL classification: H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
S. Paltsev & J. Reilly & H. Jacoby & A. Gurgel & G. Metcalf & A. Sokolov & J. Holak, 2007.
"Assessment of U.S. Cap-and-Trade Proposals,"
Working Papers
0705, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
[Downloadable!]
Other versions:
Sergey Paltsev & John M. Reilly & Henry D. Jacoby & Angelo C. Gurgel & Gilbert E. Metcalf & Andrei P. Sokolov & Jennifer F. Holak, 2007.
"Assessment of U.S. Cap-and-Trade Proposals,"
NBER Working Papers
13176, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Don Fullerton & Gilbert E. Metcalf, 2002.
"Tax Incidence,"
NBER Working Papers
8829, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Fullerton, Don & Metcalf, Gilbert E., 2002.
"Tax incidence,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872
Elsevier.
[Downloadable!] (restricted)
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