Saturday, September 28, 2013

Carbon Taxes vs. Cap and Trade: A Critical Review

A nice paper by Goulder and Schein comparing the two policy instruments. They come down in favor of carbon taxes, which is also my current thinking on this issue. One issue that they highlight is that under a cap on emissions, fossil fuel producers can cut supply raising energy prices with no demand response from consumers until the carbon price falls to zero. Therefore, potentially they can extract all the revenue from the scheme and the government gets zero. This isn't the case at all under a carbon tax.

No comments:

Post a Comment