TY  - JOUR
AU  - Metcalf,Gilbert E.
TI  - Tax Policies for Low-Carbon Technologies
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15054
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15054
L1  - http://www.nber.org/papers/w15054.pdf
N1  - Author contact info:
Gilbert E. Metcalf
Department of Economics
Tufts University
Medford, MA 02155
1500 Pennsylvania Ave., NW
Tel: 617/627-3685
Fax: 617/627-3917
E-Mail: gilbert.metcalf@tufts.edu
AB  - The U.S. tax code provides a number of subsidies for low-carbon technologies.  I discuss the difficulties of achieving key policy goals with subsidies as opposed to using taxes to raise the price of pollution-related activities.  In particular, subsidies lower the cost of energy (on average) rather than raising it.  Thus consumer demand responses work at cross purposes to the goal of reducing emissions (especially as average cost pricing is used for electricity).  Second, it is difficult to achieve technology neutrality with subsidies -- here defined as an equal subsidy cost per ton of CO2 avoided.  Third, many subsidies are inframarginal.  Finally, subsidies often suffer from unintended interactions with other policies.

I conclude with some observations on the use of price-based instruments.  In particular I discuss how a carbon tax could be designed to achieve environmental goals of emission caps over a control period.
ER  -