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Increasing Emissions Certainty under a Carbon Tax

Publication ,  Report
Murray, B; Pizer, W; Reichert, C
October 13, 2016

To reduce greenhouse gas emissions, some groups have proposed that the United States consider use of a carbon tax. But whether the nation will achieve a specific emissions goal is uncertain because the economy’s response to such a tax is uncertain. Ultimately, there is an underlying tradeoff between certainty about emissions and certainty about prices and costs. To reduce uncertainty about whether a tax will achieve specific emissions goals, additional mitigation measures could be called on if emissions exceed those goals by a given amount. However, such additional measures introduce uncertainty about costs. At the extreme, a commitment to achieve emissions targets at all costs would imply that costs could be quite high. Discussions of policy mechanisms to increase price and cost certainty under several current cap-and-trade programs confronted this same dilemma: how much uncertainty about emissions outcomes is acceptable given reciprocal uncertainty about costs? Viewed through a slightly different lens, mechanisms that balance emissions and cost uncertainty can be viewed as a way to structure a more careful compromise between economic and environmental interests. This policy brief discusses mechanisms that could increase emissions certainty under a carbon tax. It draws from recent discussions between the authors and other policy experts, and its goal is to introduce ideas for further exploration. It begins with a discussion of how to measure emissions performance, or what it means to be achieving or not achieving an emissions goal. This performance would presumably provide the basis for pursuing remedial mechanisms. Next, the brief turns to a taxonomy of such mechanisms and the challenges and opportunities of each. It discusses ideas for initiating these mechanisms, either through some automated or discretionary procedure. The brief concludes with areas for additional research. The brief intentionally raises more questions than it answers—questions will be important to explore in ways that can provide guidance to policy decisions and design.

Duke Scholars

Publication Date

October 13, 2016

Publisher

Nicholas Institute for Environmental Policy Solutions
 

Citation

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Murray, B., Pizer, W., & Reichert, C. (2016). Increasing Emissions Certainty under a Carbon Tax. Nicholas Institute for Environmental Policy Solutions.
Murray, Brian, William Pizer, and Christina Reichert. “Increasing Emissions Certainty under a Carbon Tax.” Nicholas Institute for Environmental Policy Solutions, October 13, 2016.
Murray B, Pizer W, Reichert C. Increasing Emissions Certainty under a Carbon Tax. Nicholas Institute for Environmental Policy Solutions; 2016 Oct.
Murray, Brian, et al. Increasing Emissions Certainty under a Carbon Tax. Nicholas Institute for Environmental Policy Solutions, 13 Oct. 2016.
Murray B, Pizer W, Reichert C. Increasing Emissions Certainty under a Carbon Tax. Nicholas Institute for Environmental Policy Solutions; 2016 Oct.

Publication Date

October 13, 2016

Publisher

Nicholas Institute for Environmental Policy Solutions