Taxing Cap and Trade Environmental Regulation
University of Virginia School of Law
Journal of Legal Studies, Forthcoming
Georgetown Law and Economics Research Paper No. 1010713
This paper examines the extent to which income taxation interferes with cap-and-trade environmental regulation, and reaches two conclusions. First, within a single tax period, imposing an income tax will not undermine the cost-effectiveness of cap-and-trade regulation. Second, taxes may distort cost-effective allocation of permits and abatement through time when the permit market is dominated by firms owning permits with a tax basis of zero.
Keywords: cap and trade regulation, tax law, tax policy, envioronmental policy
JEL Classification: K23, K32, K34, Q28
Date posted: August 31, 2007