Many politicians have suggested that a carbon tax, or a tax on CO2 emissions, would be the best approach to deal with the issue of CO2 emissions. Several proposals have been made to Congress for such a tax, or charge. One would introduce a charge of $15 per ton of carbon, applied at the point of production or importation of fuels, and increasing through time to reflect the fact that the problem of global warming will get worse through time. There are also many advocates of an international program of carbon taxes. Levied upstream, at points of fuel production, these taxes would filter through economies and shift prices of goods and services according to their contribution to global warming. Many individual countries, especially those of Europe, have instituted carbon taxes in recent years. In 2010 a federal working group brought together the results from many climate/economy simulation models used to predict future impacts. Some resulting numbers are shown the following table: Social Cost of CO2, 2015-2050* (in 2011 Dollars) Discount Rate and Statistic Year 2015 2020 2025 2030 2035 2040 2045 2050 3% Average $39 46 50 55 60 65 70 76 www858% 3% 95th percentile $116 137 153 170 187 204 220 235 (a) Looking at the numbers in the table: what should be the appropriate amount of a carbon tax for it to be socially efficient in 2020? (b) In the absence of a worldwide agreement to reduce CO2 through a carbon tax, how effective might it be if just one country, or a small number of countries, instituted a tax unilaterally? (c) Do you think some countries will "free ride" abatement costs from other countries? Please explain. (d) Rather than placing a tax on fuels or the carbon content of fuels, taxes might be put on fuel-using items, such as gas-guzzling cars, less efficient appliances, or houses with poor insulation. Which type of tax would be more efficient? Which type of tax would have greater equity? Discuss. Many politicians have suggested that a carbon tax, or a tax on CO2 emissions, would be the best approach to deal with the issue of CO2 emissions. Several proposals have been made to Congress for such a tax, or charge. One would introduce a charge of $15 per ton of carbon, applied at the point of production or importation of fuels, and increasing through time to reflect the fact that the problem of global warming will get worse through time. There are also many advocates of an international program of carbon taxes. Levied upstream, at points of fuel production, these taxes would filter through economies and shift prices of goods and services according to their contribution to global warming. Many individual countries, especially those of Europe, have instituted carbon taxes in recent years. In 2010 a federal working group brought together the results from many climate/economy simulation models used to predict future impacts. Some resulting numbers are shown the following table: Social Cost of CO2, 2015-2050* (in 2011 Dollars) Discount Rate and Statistic Year 2015 2020 2025 2030 2035 2040 2045 2050 3% Average $39 46 50 55 60 65 70 76 www858% 3% 95th percentile $116 137 153 170 187 204 220 235 (a) Looking at the numbers in the table: what should be the appropriate amount of a carbon tax for it to be socially efficient in 2020? (b) In the absence of a worldwide agreement to reduce CO2 through a carbon tax, how effective might it be if just one country, or a small number of countries, instituted a tax unilaterally? (c) Do you think some countries will "free ride" abatement costs from other countries? Please explain. (d) Rather than placing a tax on fuels or the carbon content of fuels, taxes might be put on fuel-using items, such as gas-guzzling cars, less efficient appliances, or houses with poor insulation. Which type of tax would be more efficient? Which type of tax would have greater equity? Discuss
