Responsibility for Climate Change, By the Numbers

This paper examines the data on responsibility for climate change due to past emissions. It addresses two aspects of responsibility. First, it shows that the data present a mixed picture. By some measures, developed or wealthy countries are responsible for most past emissions while on other means, responsibility is spread widely with poor countries responsible for a majority of emissions.The differences in the measurements are due two factors: whether the data uses a comprehensive measure of emissions and the extent to which the data is aggregated into regions. The more comprehensive the measure and the less aggregation, the more that poor countries are responsible for past emissions. Second, it examines how theories of responsibility apply to the data. The most well developed theories of responsibility that impose an obligation on injurer to make a payment to victims are the theories underlying tort law.The paper shows that standard fault-based tort theories cannot be used to support climate change obligations.Instead, the theory would have to rely on strict liability, give up on the normally required connection between injurer and victim, and accept undesirable distributive consequences. Moreover, it would not be a basis for ongoing obligations to reduce emissions because relative emissions of nations will change over time. Instead, were such a theory of obligation to be sustainable, it could only be used to support a one-time payment for harm.

The Design of a Carbon Tax

We consider the design of a tax on greenhouse gas emissions for a developed country such as the United States. We consider three sets of issues: the optimal tax base, issues relating to the rate (including the use of the revenues and rate changes over time) and trade. We show that a well-designed carbon tax can capture about 80% of U.S. emissions by taxing fewer than 3,000 taxpayers and up to almost 90% with a modest additional cost. We recommend full or partial delegation of rate setting authority to an agency to ensure that rates reflect new information about the costs of carbon emissions and of abatement. Adjustments should be made to the income tax to ensure that a carbon tax is revenue neutral and distributionally neutral. Finally, we propose an origin-based system for trade with countries that have an adequate carbon tax and a system of border taxes for imports from countries without a carbon tax. We suggest a system that imposes presumptive border tax adjustments with the ability of an individual firm to prove that a different rate should apply. The presumptive tax could be based either on average emissions for production of the item by the exporting country or by the importing country.

Climate Change and Discounting the Future: A Guide for the Perplexed

Some of the most important disagreements about how aggressively to respond to the threat of climate change turn on the choice of the discount rate. A high discount rate implies relatively modest and slow reductions; a low discount rate implies immediate and dramatic action. The debate between the two sides reflects a disagreement between the positivists, who argue for a market rate, and the ethicists, who urge that the positivist approach violates the duty of the present to the future. We argue that the positivists are largely right, and that the question of discounting should be separated from the question of the ethical duties of the present. Discounting is a means of taking account of opportunity costs, and a refusal to discount may well hurt, rather than help, future generations. Nonetheless, it is also possible that cost-benefit analysis with discounting will impose excessive harms on future generations. If so, the proper response is to make investments that will help those generations, not to refuse to discount. We also explore several questions on which the ethicists' legitimate objections require qualification of the positivists' arguments, justifying a low discount rate for climate change policy.

The Taxation of Carried Interests in Private Equity

This essay analyzes the tax treatment of carried interests in private equity. It argues that there are two competing analogies: service income and investment income. Standard approaches are not able to resolve which of the competing analogies is better and often fail even to recognize that there are competing analogies. The best method for determining the proper treatment of carried interests is through direct examination of the effects of each of the possible treatments, known as the theory of line drawing in the tax law. From this approach, it is clear that the better treatment of holders of carried interests is as investors. Key pieces of evidence include the longstanding policy premises behind partnership taxation and the complexity and avoidance problems with attempts to tax carried interests as service income

Tax Expenditures, Principal-Agent Problems, and Redundancy

This Article considers tax expenditures from two related perspectives. First, it analyzes how the incentives on Congress to use a tax expenditure change when principal-agent problems are considered. For example, it considers whether tax expenditures can reduce moral hazard or adverse selection problems created by delegations to expert agencies. Second, it considers the condition under which tax expenditures should be expected to be redundant with direct expenditures, as many are. The two perspectives—principal-agent problems and redundancy—are related because redundancy is often seen as a solution to the principal-agent problem. The Article concludes that both principal-agent concerns and redundancy might lead to an increase in the use of tax expenditures, although the circumstances in which we should expect this are relatively narrow. The Article then examines the example of the low-income housing tax credit, concluding that the credit should be replaced with a direct expenditure in the form of increased tenant vouchers