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  • Author: Joseph E. Aldy
  • Publication Date: 10-2017
  • Content Type: Working Paper
  • Institution: Belfer Center for Science and International Affairs, Harvard University
  • Abstract: This paper examines the choice between—and design of—CO2 cap-and-trade and tax policies through a political-economy lens. It draws from insights in economics and political economy to highlight important public policy principles and policy options in carbon-pricing policy design. The paper illustrates each of these insights with examples from cap-and-trade and tax-policy experiences. Revealed political preferences about carbon-pricing-policy design can, in practice, inform our understanding of how decision-makers weigh various policy principles, as well as policy objectives. The balance of the paper examines the following design choices: establishing and phasing-in policy targets; setting the point of compliance and scope of coverage; addressing uncertainties in emission and cost outcomes under carbon pricing; updating carbon-pricing targets over time; using revenue and other forms of economic value created by carbon pricing; mitigating adverse competitiveness impacts of pricing carbon; accounting for the existing, complex policy landscape in designing carbon pricing; and linking of carbon-pricing programs. The final section concludes with a discussion of policy implications and next steps for policy-relevant scholarship.
  • Topic: International Political Economy, Climate Finance, Global Political Economy
  • Political Geography: Global Focus