Why Not a Carbon Tax?

Abstract

If the world is to overcome the threat of climate change, a price must be set on car-bon. A carbon tax is a means of creating a carbon price, and it is an ideal tax in that, unlike most taxes, it promotes economic efficiency. Yet many countries have no carbon tax. The reason is that there are strong political interests opposed to taxing carbon. I shall argue that these interests need to be appeased by fully compensa-ting anyone who would otherwise be harmed by a carbon tax. This includes the owners and workers in the fossil fuel industries. If a carbon tax is to be successful, it needs to be introduced alongside an appropriate system of compensation. Some of the compensation will need to be paid out of public debt, and this will be feasi-ble for many countries only if they are supported by a new financial institution: a World Climate Bank. Show more