Friday, November 6, 2009
Terry M. Dinan (Congressional Budget Office) has published Reducing Greenhouse Gas Emissions with a Tax or a Cap: Implications for Efficiency and Cost Effectiveness, 62 Nat'l Tax J. 535 (2009). Here is the abstract:
This paper compares a tax on greenhouse gas emissions with a cap-and-trade program for reducing those emissions. The comparison is made on the basis of two criteria: economic efficiency and cost effectiveness. If there were an accepted measure of the marginal benefit of reducing a ton of greenhouse gas emissions, a tax would clearly be advantageous from an efficiency perspective. Comparing the two policies on the basis of cost effectiveness is more complicated. This paper defines the characteristics of a costminimizing price path and then examines the ability of an adjustable tax and two alternative designs of a cap-and-trade program to create such a price path.