Adding Quantity Certainty to a Carbon Tax
Resources for the Future Discussion Paper 16-43
28 Pages Posted: 14 Oct 2016
Date Written: October 12, 2016
A concern often raised about a carbon tax is that it does not provide any certainty as to the quantity of emission reductions achieved under the policy. We explore in this Issue Brief how greater emission reduction certainty can be built into a carbon tax. We first define a Tax Adjustment Mechanism for Policy Pre-Commitment (TAMPP). A TAMPP is an adjustment mechanism for the tax rate of a carbon tax to ensure that targeted emission reduction milestones are met over the next few decades. We then provide some guidance based on economic principles related to various design considerations that should be incorporated in a cost-effective and politically realistic TAMPP.
Keywords: carbon tax, emissions uncertainty, climate
JEL Classification: Q58, H23, Q50
Suggested Citation: Suggested Citation