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Climate Change and Common SenseEssays in Honour of Tom Schelling$
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Robert W. Hahn and Alistair Ulph

Print publication date: 2012

Print ISBN-13: 9780199692873

Published to Oxford Scholarship Online: May 2012

DOI: 10.1093/acprof:oso/9780199692873.001.0001

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Carbon Taxes and the Green Paradox

Carbon Taxes and the Green Paradox

Chapter:
(p.203) 11 Carbon Taxes and the Green Paradox
Source:
Climate Change and Common Sense
Author(s):

Michael Hoel

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199692873.003.0011

A sufficiently high carbon tax will reduce near-term carbon emissions compared with the case of no tax. For lower tax rates that increase faster than some threshold that is at least as high as the rate of interest, near-term emissions may be higher compared with the case of no carbon tax. Even so, such a carbon tax path may reduce total costs related to climate change, since the tax may reduce total carbon extraction. A government cannot commit to a specific carbon tax rate in the distant future. For reasonable assumptions about expectation formation, a higher present carbon tax will reduce near-term carbon emissions. However, if the near-term tax rate for some reason is set below its optimal level, increased concern for the climate may change taxes in a manner that increases near-term emissions.

Keywords:   green paradox, carbon tax, climate change, exhaustible resources

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