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Coase Lecture—Taxes, Targets and the Social Cost of Carbon
Author(s) -
Pindyck Robert S.
Publication year - 2017
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12243
Subject(s) - carbon tax , coase theorem , social cost , economics , marginal abatement cost , marginal cost , metric (unit) , greenhouse gas , set (abstract data type) , tonne , climate policy , marginal utility , tax basis , range (aeronautics) , public economics , climate change , microeconomics , emissions trading , tax reform , ecology , operations management , computer science , transaction cost , gross income , chemistry , materials science , organic chemistry , state income tax , composite material , programming language , biology
In environmental economics, the marginal external cost of emitting a pollutant determines the optimal abatement policy, which might take the form of an emissions tax. But the marginal external cost is often difficult to estimate. This is especially the case when it comes to climate change; estimates of the social cost of carbon (SCC) range from around $10 per metric ton to well over $200 per metric ton, and there has been little or no movement toward a consensus number. Partly as a result, rather than an SCC‐based carbon tax, climate policy has focused on a set of targets that would put limits on temperature increases or atmospheric CO 2 concentrations, which in turn imply targets for emission reductions. Economics, however, can tell us little about whether such targets are socially optimal. I discuss the trade‐off between taxes versus targets as the focus of policy, explain why it has been so difficult to estimate a marginal SCC, and suggest an approach to estimating an average SCC through the use of expert elicitation. I argue that such an approach could serve as the basis for a harmonized carbon tax.