Tax Policy Issues in Designing a Carbon Tax

Research Report

Tax Policy Issues in Designing a Carbon Tax

Abstract

A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.
Copyright American Economic Association; reproduced with permission of the American Economic Review.

Research Area: 
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.