Increasing Emissions Certainty under a Carbon Tax
Abstract
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.
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Murray, Brian, William Pizer and Christina Reichert (2016). Increasing Emissions Certainty under a Carbon Tax. Retrieved from https://hdl.handle.net/10161/27344.
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Brian Murray
Dr. Brian C. Murray is Director of the Nicholas Institute for Energy, Environment & Sustainability, Research Professor at the Nicholas School of the Environment (primary) and Sanford School of Public Policy (secondary), and Faculty Associate of the Duke Initiative for Science & Society. In 2015 he was Fulbright Visiting Research Chair in Environment and Economy at University of Ottawa’s Institute of the Environment. He is widely recognized for his work on the economics of energy and climate change policy, including the design of market based mechanisms to reduce greenhouse gases and deploy low-carbon energy. Members of the United States Congress, state legislators and regulators have sought the counsel of Dr. Murray and colleagues in developing energy and climate legislative proposals and regulatory options. Their development of the cost containment reserve mechanism is now in use in several greenhouse cap-and-trade programs in North America. Dr. Murray has been invited as a co-author of several national and international assessments of natural resources, especially related to energy and climate change. Of particular note, he serves on a National Academy of Sciences panel on greenhouse gases and the tax code, where he led the panel’s efforts on biofuel subsidies. He was a convening lead author of the Intergovernmental Panel on Climate Change’s Special Report on Land Use, Land Use Change, and Forestry. He has convened several forums of economic modeling experts to examine and communicate the results of their climate, energy and land use policy efforts to the public and private sectors. His research has examined the economic effects of traditional command-based regulatory strategies for pollution control and more market-oriented approaches such as cap-and-trade programs and emission taxes. He has been a consultant to a wide range of clientele in the public and private sector, including numerous federal government agencies, members of Congress and their staff, state regulatory agencies, CEOs and senior staff from Fortune 500 companies, trade groups, nongovernmental organizations, and other academic institutions. He has authored or co-authored over 100 publications in books, edited volumes, and professional journals across a range od disciplines. From 2017-21 he was a regular contributor to Forbes. Prior to coming to the Nicholas Institute in 2006, Dr. Murray was Director of the Center for Regulatory Economics and Policy Research at RTI International, a university-affiliated not-for-profit research institution.
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