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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