Carbon Taxes in Theory and Practice

Key Findings

In theory, the carbon tax is the most efficient approach to address climate change.
In practice, however, the policymaking process can interfere and weaken the policy.
We consider several theoretical arguments for carbon taxes and the evidence from carbon taxes implemented around the world related to emissions, economic growth, distribution and revenue recycling options, other environmental taxes, green subsidies, and environmental regulations.
Most of the major arguments hold up well: the tax is not a significant drag on economic growth, it reduces emissions, and the revenue is usually returned to taxpayers by reducing other taxes.
One argument in particular falls short: the tax is rarely accompanied by complementary efforts to streamline environmental policymaking.
When looking at carbon taxes around the world, the United States can find some aspects to emulate and others to avoid.
While it might be difficult to transfer the exact theoretical carbon tax into practice, a next-best, real-world carbon tax is certainly achievable.

CBAM