Carbon Taxes or Emissions Trading Systems?: Instrument Choice and Design
Staff Climate Notes, July 21, 2022
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- Carbon Taxes or Emissions Trading Systems?: Instrument Choice and Design
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Bibliographic details
- Authors: Ian W.H. Parry, Simon Black, Karlygash Zhunussova
- Published: July 21, 2022
- Series: Staff Climate Notes
- DOI: https://doi.org/10.5089/9798400212307.066
Central finding and framing
- Carbon pricing should be a central element of climate mitigation strategies to help countries transition to ‘net zero’ greenhouse gas emissions over the next three decades.
- Policymakers choosing to introduce or scale up carbon pricing face technical and political choices between carbon taxes and emissions trading systems (ETSs), as well as detailed design decisions.
Comparative assessment: carbon taxes versus ETSs
- Carbon taxes have significant practical advantages over ETSs, especially for developing countries:
- Ease of administration.
- Price certainty to promote investment.
- Potential to raise significant revenues.
- Coverage of broader emissions sources.
- Emissions trading systems (ETSs) can have significant political economy advantages that may make them preferable in some settings.
Design issues and policy choices discussed
- Administration arrangements for implementing carbon taxes or ETSs.
- Price levels and mechanisms to ensure predictable incentives for low-carbon investment.
- Relation to other mitigation instruments (interaction and complementarities).
- Use of revenues to address efficiency and distributional objectives.
- Supporting measures to address competitiveness concerns for exposed industries.
- Extension strategies to cover broader emissions sources over time.
- Coordination at the global level to reduce leakage and harmonize efforts.
- Political economy considerations influencing instrument choice and detailed design.
Guidance and analysis provided
- The paper provides guidance, broader considerations, and quantitative analyses on choice and design between carbon taxes and ETSs.
- Emphasis on matching instrument choice to country circumstances, administrative capacity, revenue needs, and political feasibility.
Publication and metadata (key facts)
- Authors: Ian W.H. Parry, Simon Black, Karlygash Zhunussova
- Publication date: July 21, 2022
- Series: Staff Climate Note No 2022/006
- Pages: 25
- DOI: https://doi.org/10.5089/9798400212307.066
- ISBN: 9798400212307
Parry, Ian W.H.; Black, Simon; Zhunussova, Karlygash — "Carbon Taxes or Emissions Trading Systems?: Instrument Choice and Design", Staff Climate Notes 2022, 006 (July 21, 2022).
Content in this bundle
- Clnea2022006