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This chapter discusses the implementation of higher tax levies and tradable quotas on the emissions of greenhouse gases by the creation of independent bodies that will monitor those that are large emitters and tax them accordingly.

The chapter also discusses the balance of how carbon and other greenhouse gases are taxed, and how to create policies that work in favour of stabilising and eventually reducing greenhouse gases

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Economic barriers

Different considerations over short term vs long term.

Short term - any reduction in C02 over the short term has a minimal effect on the total stock of carbon. Therefore benefits of a reduction of carbon over the short term change little over the level of pollution. Whereas costs of trying to reduce too quickly should be high. So in short term trying to impose a fixed quota could be costly. Instead use pricing mechanisms like taxes or tradable quotas.

Long term
- marginal cost of CO2 will rise over the long term and can rise very quickly as reaches tipping point
- whilst costs of abatement should be more even over long term once new capital goods and tech to reduce carbon have already been establishes.
- So over long term a fixed quantity quota may be beneficial.

Recommend - adjusting price mechanisms regularly to increase the price to reflect the increasing marginal social cost of C02 over the long term. Set a long term limit.

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Common price signal across countries may be difficult.  Imperfect market for fossil fuels -  producers can anticipate price increased taxes and reduce demand, and reduce prices now to sell off now before demand decreases. May accelerate use of fossile fuels. Tax should take into account these complexities.

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Common price signal across countries may be difficult.  Imperfect market for fossil fuels -  producers can anticipate price increased taxes and reduce demand, and reduce prices now to sell off now before demand decreases. May accelerate use of fossile fuels. Tax should take into account these complexities.

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Tradable quota may create rents and reduce efficiency as resources are wasted in rent-seeking lobbying etc and blocks to entry when incumbents have rents.

Equity - resources may not go to developing countries.

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Taxes generate revenue, quotas depends on whether a sale or auction is involved.

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Taxes generate revenue, quotas depends on whether a sale or auction is involved.

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Could use revenue to encourage reduced emissions etc.

Need to coordinate across countries.
Could use to assist developing countries.
Need robust institutions.

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Taxes and tradable quotas are both judged to perform well against efficiency criteria. Help to establish a consistent price signal for CO2 across regions and sectors.

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- Imperfect information
- Difficulties of ensuring scarcity in carbon trading market
- The need of a complete systems

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Policies need to be credible, flexible and predictable.

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Policies need to be credible, flexible and predictable.

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- businesses need to be able to have confidence and plan.eg busineses would like more certainty on EU trading scheme
- need to know when might change
needs support of interest groups
- businesses make decisions long term and need to be able to factor in higher carbon prices now in their long term investments otherwise might get locked into high carbon tech

Specific national circumstances are important and different policies may be credible in different countries

Need common incentives across countries and sectors. But polcies need to be customised to sectors.

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Need to complement carbon pricing with other measures such as promotion of technology development 

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Need to complement carbon pricing with other measures such as promotion of technology development 

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Trading can allow emissions reductions wherever it is cheapest.

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Trading can allow emissions reductions wherever it is cheapest.

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has been implemented in EU

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Price caps  and floors in emission trading schemes (?)

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Price caps  and floors in emission trading schemes (?)

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It is a economic concept in which prevent the market price spike and maintain the price in the minimum level. (But not sure if it is fit in this column.)

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I've mainly looked at chapter 14, if anyone wants to look at chapter 15 in more detail, or more notes on chapter 14 would be useful. Heather

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I've mainly looked at chapter 14, if anyone wants to look at chapter 15 in more detail, or more notes on chapter 14 would be useful. Heather

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Difficulties in the implementation of the carbon tax

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Difficulties in the implementation of the carbon tax

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- Numerous exemptions
- Did not reflect the actual emission level of emitter.
- Difficult to co-ordinate the tax policy internationally e.g. Norway, Sweden, Finland and Denmark

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Price caps  and floors in emission trading schemes (?)It is a economic concept in which prevent the market price spike and maintain the price in the minimum level. (But not sure if it is fit in this column.)

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Price caps  and floors in emission trading schemes (?)It is a economic concept in which prevent the market price spike and maintain the price in the minimum level. (But not sure if it is fit in this column.)

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Common price signal between countries

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Raise the public revenue

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Pushing the growth of technology

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Price caps and floors in emission trading schemes (?)It is a economic concept in which prevent the market price spike and maintain the price in the minimum level. (But not sure if it is fit in this column.)

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Price caps  and floors in emission trading schemes (?)It is a economic concept in which prevent the market price spike and maintain the price in the minimum level. (But not sure if it is fit in this column.)
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