NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Promise and Problems of Pricing Carbon: Theory and Experience

Joseph E. Aldy, Robert Stavins

NBER Working Paper No. 17569
Issued in November 2011
NBER Program(s):   EEE   IO   LE   PE

Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

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Document Object Identifier (DOI): 10.3386/w17569

Published: “The Promise and Problems of Pricing Carbon: Theory and Experience.” Journal of Environment and Development 21(2): 152-180, with Robert N. Stavins, 2012.

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