Department of Economics
Stanford, CA 94305
NBER Working Papers and Publications
|August 2013||Carbon Taxes vs. Cap and Trade: A Critical Review|
with Lawrence H. Goulder: w19338
We examine the relative attractions of a carbon tax, a "pure" cap-and-trade system, and a "hybrid" option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts. Several of these dimensions have received little attention in prior literature.
A key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of attractions over pure cap and trade. Beyond helping prevent price volatility and reducing expected policy errors in the face of uncertainties, exogenous pricing helps avoid problematic interactions with other climate...
Published: LAWRENCE H. GOULDER and ANDREW R. SCHEIN, Clim. Change Econ. 04, 1350010 (2013)