Carbon Tax

(redirected from Optimal carbon tax)
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A proposed tax that would be levied against high consumers of heating oil, gasoline, electricity, etc., in an effort to reduce the emission of greenhouse gases
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Thus far, I have focused on technical criticisms of Nordhaus's calculation of the optimal carbon tax profile.
The 2007 DICE model contains simulations not just of the baseline (no controls) and the optimal carbon tax scenarios, but of many other policies as well.
The optimal carbon tax is the best policy for two related reasons: first, it is calibrated to balance marginal abatement costs against marginal benefits from avoided climatic damage; second, it uses a very flexible tool (namely, time-varying penalties on carbon use) that can be perfectly correlated (in the DICE model, at least) with the level of damages inflicted on the world.
Notice that this conclusion does not necessarily mean that the optimal carbon tax in the participating countries will be 250 percent higher relative to the full-participation scenario.
Under such assumptions there would be no equity adjustment to the optimal carbon tax because those taxed (the rich now) and those receiving the benefits (the future poor) would have the same income.
For example, William Nordhaus calculates that the optimal carbon tax as of 2015 would be about $35 per ton.
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