Location of Repository

Combining Rebates with Carbon Taxes: Optimal Strategies for Coping with Emissions Leakage and Tax Interactions

By Carolyn Fischer and Alan K. Fox

Abstract

Emissions regulations like carbon pricing raise the price of covered sector goods and thus can interact with and exacerbate other preexisting distortions in the economy. One such distortion is labor taxes. Another is emissions “leakage” due to the lack of comparable emissions pricing abroad or among other emitting sectors at home. A potential response is to combine the emissions tax with a rebate to production to mitigate the price increases. We use an optimal tax framework to solve for the optimal emissions tax and output rebate, given these distortions. We then employ a multisector computable general equilibrium model based on the GTAP framework to simulate the effects of a $50 per-ton carbon tax on the major emissions-intensive sectors in the U.S. economy and estimate optimal rebates by sector.carbon tax, tax interaction, carbon leakage

OAI identifier:

Suggested articles

Preview

Citations

  1. (2001). Environmental Controls, Scarcity Rents, and Pre-Existing Distortions.
  2. (1997). Environmental Levies and Distortionary Taxation:
  3. (1994). Environmental Levies and Distortionary Taxation.
  4. (2000). GTAPinGAMS and GTAP-EG: Global Datasets for Economic Research and Illustrative Models. Working paper.
  5. (2000). Health Effects in a Model of Second-Best Environmental Taxation or Reconsidering “Reconsidering the Tax-Interaction Effect.” NBER Working Paper 8048.
  6. (2007). How confident can we be of CGE-based assessments of Free Trade Agreements? Economic Modelling,
  7. (2002). Incorporating Labor-Leisure Choice into a Static General Equilibrium Model. Working paper.
  8. (2007). Is There a Rationale for Output-Based Rebating of Environmental Levies?
  9. (2007). Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions. Land Economics. Forthcoming
  10. (2006). Refunded Emission Payments Theory, Distribution of Costs, and Swedish Experience of NOx Abatement. Ecological Economics 57(1): 93–106. Resources for the Future Fischer and Fox
  11. (1999). Second-Best Evaluation of Eight Policy Instruments to Reduce Carbon Emissions.
  12. (1999). The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting.
  13. (2001). The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage.
  14. (2009). When Revenue Recycling Isn’t Enough: Permit Allocation Strategies to Minimize Intra- and International Emissions Leakage. Working Paper. Washington, DC: Resources for the Future.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.