Mixing it Up: Power Sector Energy and Regional and Regulatory Climate Policies in the Presence of a Carbon Tax


Dallas Burtraw and Karen Palmer


A carbon tax will interact with other policies that are intended to reduce
carbon dioxide emissions and encourage clean sources of energy and energy
efficiency. This paper examines these policy interactions. A well-designed
carbon tax can be an efficient instrument for reducing emissions, yet whether it
will be implemented in an efficient manner is uncertain. A legislatively
determined tax may not fully reflect up-to-date scientific and economic
information. Behavioral and institutional factors suggest that a tax may not
have its fully intended effect. These considerations suggest that climate policy
should and will continue to be a complex mix of regulaions at various levels of
government, even with a carbon price. Nonetheless, the possibility of unintended
interactions among policies remains. The role for policies to encourage
renewables and energy efficiency depends on the stringency of the carbon tax and
presence of externalities related to technological learning and the energy
efficiency gap.



Chapter in forthcoming book from International Monetary Fund.

Updated: 2014-10-31

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