Experience with Carbon Taxes and Greenhouse Gas Emissions Trading Systems

37 Pages Posted: 17 Feb 2018

See all articles by Erik Haites

Erik Haites

Margaree Consultants Inc.

Duan Maosheng

Tsinghua University

Kelly Sims Gallagher

Tufts University

Sharon Mascher

Faculty of Law, University of Calgary; Faculty of Arts, Business, Law and Education, University of Western Australia

Easwaran Narassimhan

Tufts University

Kenneth R. Richards

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Masayo Wakabayashi

Central Research Institute of Electric Power Industry

Date Written: January 2018

Abstract

Carbon taxes and emissions trading systems (ETSs) to limit emissions of greenhouse gases (GHGs) are becoming increasingly common. At the end of 2015, 17 GHG ETSs were operational in 55 jurisdictions while 18 jurisdictions collected a carbon tax. Empirical evidence on the performance of carbon taxes and GHG ETSs is sparse. This paper assesses the performance of those taxes and ETSs as implemented with respect to: environmental effectiveness (reduction of actual emissions), cost-effectiveness (marginal abatement cost), economic efficiency, public finance and administrative issues. Actual emissions fell for seven of 13 carbon taxes for which data are available and for at least six of ten ETSs. Taxes and ETSs in other jurisdictions may have reduced emissions from what they would have been but not enough to lower actual emissions. In at least 3 tax jurisdictions, the emission reductions appear to be due to complementary policies. Data to determine the contribution of complementary policies to the reduction of emissions covered by ETSs are not available. On average the marginal cost is substantially lower for ETSs than carbon taxes. The emissions reductions achieved by existing carbon taxes are small in most jurisdictions due to the low tax rates, the modest changes in tax rates and inelastic demands for fossil fuels. Existing taxes yield virtually no insight into the relationship between changes to the tax rate and changes to emissions. All of the ETSs have accumulated banks of surplus allowances and most have implemented measures to reduce these banks.

Keywords: greenhouse gases, carbon tax, emissions trading, effectiveness

JEL Classification: Q54, Q58, H23

Suggested Citation

Haites, Erik and Maosheng, Duan and Gallagher, Kelly Sims and Mascher, Sharon and Narassimhan, Easwaran and Richards, Kenneth R. and Wakabayashi, Masayo, Experience with Carbon Taxes and Greenhouse Gas Emissions Trading Systems (January 2018). Available at SSRN: https://ssrn.com/abstract=3119241 or http://dx.doi.org/10.2139/ssrn.3119241

Erik Haites (Contact Author)

Margaree Consultants Inc. ( email )

71 Front Street East, Suite 615
Toronto, Ontario M5E 1T9
Canada
+14163690900 (Phone)

Duan Maosheng

Tsinghua University ( email )

Beijing, 100084
China

Kelly Sims Gallagher

Tufts University ( email )

Medford, MA 02155
United States

Sharon Mascher

Faculty of Law, University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Faculty of Arts, Business, Law and Education, University of Western Australia ( email )

M253
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Easwaran Narassimhan

Tufts University ( email )

Medford, MA 02155
United States

Kenneth R. Richards

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Masayo Wakabayashi

Central Research Institute of Electric Power Industry ( email )

Chiyoda-ku Tokyo 100-8126
Japan

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