Carbon Tax

One way governments can decrease air pollution is to impose a tax on industrial carbon dioxide emissions. But why should governments consider a carbon tax when they could control emissions by establishing energy efficiency and conservation standards, by legislating against coal use, or by increasing investment in nuclear power? The great virtue fuels for those carrying a higher tax, and also to reduce the total use of energy.

However, it is not clear how high such a tax should be or what its economic and environmental implications would be. At first glance, it is not difficult to estimate roughly the size of the tax needed to effect a given level of emission reduction. One writer estimates, for example, that a also based on the assumption that all countries will behave cooperatively in imposing a carbon tax.

There are very strong reasons to believe that cooperation would be difficult to win. If most countries cooperated, then any country that chose not to cooperate would be advantaged: it would have no abatement costs, and the effect on the environment of its defection would be relatively small. Because needed to reduce carbon dioxide emissions might prove elusive.

Should countries act unilaterally to curb emissions? If a country were to act unilaterally, the benefits would be spread across the globe, whereas the costs would fall solely on the country taking the action. The action would reduce emissions globally, and the effect of this would be to reduce the benefit other emission reduction may not be lost, but it would surely be diminished by this free-riding behavior.