Weathervane - Taxes and Subsidies

Costs and Benefits

Price vs. Quantity

Emissions Targets

Taxes and Subsidies

Cap and Trade

Command and Control

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Confronting the Adverse Industry Impacts of Carbon Dioxide Abatement Policies: What Does it Cost?
Lawrence H. Goulder
Climate Issue Brief #23
September 2000

Environmentally and Economically Damaging Subsidies: Concepts and Illustrations
Carolyn Fischer and Michael A. Toman
Climate Issue Brief #14 October 1998; Revised August 2000

Revenue Recycling and the Costs of Reducing Carbon Emissions
Ian W.H. Parry
Climate Issue Brief #2
June 1997

Choosing Environmental Policy: Comparing Instruments and Outcomes in the United States and Europe
Winston Harrington, Richard Morgenstern, Thomas Sterner, eds. RFF Press, 2004.

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Policy Design

Taxes and Subsidies

In the absence of policy intervention, sources of greenhouse gas emissions bear no cost for their emissions. To provide the incentive to abate these emissions, policymakers can impose an emissions tax. These sources would then find it economic to abate emissions so long as the cost of abating another unit of emissions is less than the amount of the tax. In response to the tax, the private sector will pursue low-cost emissions abatement first, and such a policy also ensures that all sources face the same price for emitting greenhouse gases.

Subsidies for technologies that are climate-friendly – zero emissions or emissions-lean technologies – can also create the incentive for sources of greenhouse gas emissions to make capital investments that result in lower emissions. By changing the relative prices of emissions-intensive and emissions-lean products in favor of the latter, these subsidies can spur investment in new technologies. In addition, subsidies can address the socially suboptimal expenditures on R&D, especially basic R&D.

Scholars at Resources for the Future have evaluated the effects of carbon taxes on the U.S. economy and compared the economy-wide impacts of carbon taxes with various forms of cap-and-trade programs and command-and-control regulations. Research on fuel efficiency and the optimal gasoline taxes in the United States and the United Kingdom, with an explicit accounting of the climate damages associated with driving, has been another recent focus of RFF's efforts. Analyses of technology subsidies and R&D policies have also helped inform the policy arena about the role of technology policy as well as move the academic frontier.

		Combating Global Warming Is taxation or cap-and-trade the better strategy for reducing greenhouse emissions? Ian W.H. Parry and William A. Pizer Regulation Vol. 30, No. 3 Fall 2007



		Emission Trading versus CO2 Taxes Ian W. H. Parry and William A. Pizer Weathervane Backgrounder \| May 2007 This Backgrounder compares and contrasts the two policy approaches and examines the extent to which the potential advantages of CO2 taxes might be captured in a hybrid emissions trading program through appropriate design features, such as safety valves and allowance auctioning.



		Should We Abandon Cap-and-Trade in Favor of a CO2 Tax? Ian W.H. Parry RFF Web Feature March 2007



		Air Emissions of Ammonia and Methane from Livestock Operations: Valuation and Policy Options Jhih-Shyang Shih, Dallas Burtraw, Karen L. Palmer, and Juha V. Siikamäki Discussion Paper 06-11 March 2006



		Let's Get Real on Energy Reform Joel Darmstadter RFF Web Feature March 2007 RFF Senior Fellow Joel Darmstadter comments in Newsday on how President Bush and Senator Clinton's plans ignore the best way to cut our dependence on oil: a high fuel tax.



		The Stern Review and the Economic Analysis of Climate Change An RFF Seminar February 2007



		Panel: The Choice of Instruments Understanding Transatlantic Differences An RFF Co-Hosted Seminar Speakers address various methods for reducing greenhouse gas emissions, including priced-based market mechanisms and trading schemes and assess the pros and cons of each.




		Environmental and Technology Policies for Climate Change and Renewable Energy Carolyn Fischer and Richard G. Newell Discussion Paper 04-05, April 2004 Revised June 2005 Some of the most popular ways for supporting renewable energy are the least efficient at reducing carbon dioxide emissions. The most efficient way is also the least popular, setting out a dilemma for policymakers.



		A Carbon Tax In Time, Saves Nine Paul Portney RFF Web Feature June 2005 Former RFF President Paul Portney proposes a carbon tax on fossil fuels to address a number of the most pressing problems facing the United States.



		Can an Effective Global Climate Treaty Be Based on Sound Science, Rational Economics, and Pragmatic Politics? Robert N. Stavins Discussion Paper 04-28 May 2004



		Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits Ian W.H. Parry Discussion Paper 03-46 December 2003

Market Power and Output-Based Refunding of Environmental Policy Revenues
Carolyn Fischer
Discussion Paper 03-27 | May 2003

Combining Rate-Based and Cap-and-Trade Emissions Policies
Carolyn Fischer
Discussion Paper 03-32 | May 2003

Output-Based Allocation of Environmental Policy Revenues and Imperfect Competition
Carolyn Fischer
Discussion Paper 02-60 | January 2003

Are Tradable Emissions Permits a Good Idea?
Ian W.H. Parry
Issue Brief 02-33 | November 2002

Adjusting Carbon Cost Analyses to Account for Prior Tax Distortions
Ian W.H. Parry
Discussion Paper 02-47 | August 2002

Multilateral Trade Agreements and Market-Based Environmental Policies
Carolyn Fischer, Sandra A. Hoffmann, and Yutaka Yoshino
Discussion Paper 02-28 | May 2002

Does Britain or the United States Have the Right Gasoline Tax?
Ian W.H. Parry and Kenneth Small
Discussion Paper 02-12 | March 2002; Revised September 2004

International Emissions Trading Design and Tax Shifting by Multinational Corporations
Carolyn Fischer
Climate Issue Brief 02-01 | January 2002

Is There a Rationale for Rebating Environmental Levies?
Alain Bernard, Carolyn Fischer, and Marc Vielle
Discussion Paper 01-31 | October 2001

Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards
Carolyn Fischer
Discussion Paper 01-22 | July 2001

Multinational Taxation and International Emissions Trading
Carolyn Fischer
Discussion Paper 01-18 | April 2001