Analysis of U.S. Greenhouse Gas Tax Proposals

45 Pages Posted: 12 May 2008 Last revised: 29 Oct 2013

See all articles by Gilbert E. Metcalf

Gilbert E. Metcalf

Tufts University - Department of Economics; National Bureau of Economic Research (NBER)

Sergey Paltsev

Massachusetts Institute of Technology (MIT)

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Henry D. Jacoby

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Jennifer F. Holak

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Date Written: May 2008

Abstract

The U.S. Congress is considering a set of bills designed to limit the nation's greenhouse gas (GHG) emissions. This paper complements the analysis by Paltsev et al. (2007) of cap-and-trade bills and applies the MIT Emissions Prediction and Policy Analysis (EPPA) model to carry out an analysis of the tax proposals. Several lessons emerge from this analysis. First, a low starting tax rate combined with a low rate of growth in the tax rate will not reduce emissions significantly. Second, the costs of GHG reductions are reduced with the inclusion of non-CO2 gases in the carbon tax scheme. Third, welfare costs of the policies can be affected by the rate of growth of the tax, even after controlling for cumulative emissions. Fourth, a carbon tax -- like any form of carbon pricing -- is regressive. However, general equilibrium considerations suggest that the short-run measured regressivity may be overstated. Additionally, the regressivity can be offset with a carefully designed rebate of some or all of the revenue. Finally, the carbon tax bills that have been proposed or submitted are for the most part comparable to many of the carbon cap-and-trade proposals that have been suggested. Thus the choice between a carbon tax and cap-and-trade system can be made on the basis of considerations other than their effectiveness at reducing emissions over some control period.

Suggested Citation

Metcalf, Gilbert E. and Paltsev, Sergey and Reilly, John M. and Jacoby, Henry D. and Holak, Jennifer F., Analysis of U.S. Greenhouse Gas Tax Proposals (May 2008). NBER Working Paper No. w13980. Available at SSRN: https://ssrn.com/abstract=1131633

Gilbert E. Metcalf (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-3685 (Phone)
617-627-3917 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Sergey Paltsev

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
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Cambridge, MA 02139-4307
United States

John M. Reilly

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States
617-253-8040 (Phone)

Henry D. Jacoby

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-444
Cambridge, MA 02142
United States
617-253-6609 (Phone)
617-258-6855 (Fax)

Jennifer F. Holak

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

E19-429
77 Massachusetts Ave
Cambridge, MA 02139
United States

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