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41 Harv. Envtl. L. Rev. F. 1 (2017)

handle is hein.journals/helf41 and id is 1 raw text is: RESOLVING THE INHERENT UNCERTAINTY OF CARBON TAXES INTRODUCTION Joseph E. Aldy, Marc Hafstead, Gilbert E. Metcalf Brian C. Murray, William A. Pizer, Christina Reichert & Roberton C. Williams III Carbon dioxide emissions from fossil fuel combustion represent the single largest driver of anthropogenic climate change.' These emissions reflect the failure of businesses and individuals to account for the impacts of their fossil-fuel-use decisions on the global climate. Since these decision-makers bear an infinitesimally small fraction of the global climate change damages associated with their fossil fuel consumption, they do not have the incentive to reduce carbon pollution voluntarily. Economists have long called for pricing carbon to reflect the social damages associated with the impacts of carbon dioxide emissions on the global climate.2 By internalizing the climate change externalities associated with carbon emissions, carbon pricing can promote cost-effective emission abatement, deliver strong incentives for innovation, and improve governments' fiscal positions.3 Through carbon pricing, governments provide strong incentives to private firms and individuals to identify and exploit the lowest-cost ways to reduce emissions and invest in the development of new technologies that could enable even greater emission mitigation in the future. Carbon pricing by national governments may also illustrate a country's mitigation effort and serve as a focal point that enables progress in negotiating multilateral climate agreements.5 The prospect of pricing carbon through carbon tax or cap-and-trade policies has drawn considerable interest in the policy world. At the September 2014 United Nations climate summit, 73 countries and more than 1,000 companies advocated for pricing 1 See Summary for Policymakers, in INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE, CLIMATE CHANGE 2013-THE PHYSICAL SCIENCE BASIS: CONTRIBUTION OF WORKING GROUP I TO THE FIFTH ASSESSMENT REPORT OF THE IPCC 3,13 (2013). 2 See William D. Nordhaus, Economic Growth and Climate: The Carbon Dioxide Problem, 67 Am. ECON. REV. 341, 341-46 (1977); see also Joseph E. Aldy et al., Designing Climate Mitigation Policy, 48 J. ECON. LITERATURE 903, 904-05 (2010). SJoseph E. Aldy & Robert N. Stavins, Using the Market to Address Climate Change: Insights from Theory and Experience, 141 DAEDALUS 45, 45 (2012). 4 Joseph E. Aldy & Robert N. Stavins, The Promise and Problems of Pricing Carbon, 21 J. ENV'T & DEV. 152, 152 (2012). ' See Joseph E. Aldy & William A. Pizer, Alternative Metrics for Comparing Domestic Climate Change Mitigation and the Emerging International Climate Policy Architecture, 10 REV. ENVTL. ECON. & POLY 3, 11 (2016); see also Martin L. Weitzman, Internalizing the Climate Externality: Can a Uniform Price Commitment Help?, 4 ECON. ENERGY& ENVTL. POLY 37, 44 (2015).

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