GHG Daily Monitor Vol. 1 No. 127
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July 11, 2016

Developing a Carbon Tax a Complicated Process, Brookings Paper Says

By ExchangeMonitor

Economists generally regard carbon pricing as the best way to reduce greenhouse gas emissions, but putting such a mechanism into place is a complex process, a new Brookings Institution paper says. “When it comes to developing an actual policy, a host of devilish details arise. Any carbon levy legislation would have to address a number of key design decisions—and serious tradeoffs arise across nearly all of them. How, for example, would the policy balance giving certainty to firms that make long-term investments, but still allow for updates as information, technology, and outcomes evolve?” the July 8 letter says.

The paper lays out the following 11 questions that need to be answered when developing a carbon pricing mechanism:

  1. What is the name of the carbon pricing policy?
  2. What greenhouse gas (GHG) sources and gases does the policy cover?
  3. What’s the initial price and how does it change over time?
  4. Who pays the carbon charge?
  5. Who collects the revenue?
  6. What happens to the revenue?
  7. Does it change other Federal climate and energy policies, and if so how?
  8. Does it constrain state-level policies?
  9. Does it allow offsets (alternatives to paying a fee)?
  10. Does it give credits or rebates for certain activities?
  11. Does it include measures to reduce effects on U.S. competitiveness and emissions leakage?

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