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Reducing Greenhouse Gas Emissions With a Tax or a Cap: Implications for Efficiency and Cost Effectiveness

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  • Dinan, Terry M.

Abstract

This paper compares a tax on greenhouse gas emissions with a cap-and-trade program for reducing those emissions. The comparison is made on the basis of two criteria: economic efficiency and cost effectiveness. If there were an accepted measure of the marginal benefit of reducing a ton of greenhouse gas emissions, a tax would clearly be advantageous from an efficiency perspective. Comparing the two policies on the basis of cost effectiveness is more complicated. This paper defines the characteristics of a costminimizing price path and then examines the ability of an adjustable tax and two alternative designs of a cap-and-trade program to create such a price path.

Suggested Citation

  • Dinan, Terry M., 2009. "Reducing Greenhouse Gas Emissions With a Tax or a Cap: Implications for Efficiency and Cost Effectiveness," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 535-553, September.
    • Handle: RePEc:ntj:journl:v:62:y:2009:i:3:p:535-53
    DOI: 10.17310/ntj.2009.3.11
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    Cited by:

    1. Stocking, Andrew, 2012. "Unintended consequences of price controls: An application to allowance markets," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 120-136.
    2. Akkaya Sahin & Bakkal Ufuk, 2020. "Carbon Leakage Along with the Green Paradox Against Carbon Abatement? A Review Based on Carbon Tax," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 25-44, June.
    3. Xiangsheng Dou & Huanying Cui, 2017. "Low-carbon society creation and socio-economic structural transition in China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 19(5), pages 1577-1599, October.

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