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World Bank
Poverty Reduction and Economic Management Network
The Economics of Climate Change
Discussion Papers Series
No. 1
A Tax-Based Approach to Slowing Global Climate Change
Joseph E. Aldy
Resources for the Future, Washington DC
Eduardo Ley
The World Bank, Washington DC
Ian Parry
Resources for the Future, Washington DC
August 2008
Washington, D.C.
- iii -
CONTENTS
FOREWORD IV
ABSTRACT V
ACKNOWLEDGEMENTS VI
ABBREVIATIONS AND ACRONYMSVII
I. INTRODUCTION1
II. ISSUES IN THE CHOICE OF CONTROL INSTRUMENT⎯A DOMESTIC PERSPECTIVE2
A. COST-EFFECTIVENESS 3
B. IMPLICATIONS OF ABATEMENT-COST UNCERTAINTY 4
C. COST-EFFECTIVENESS ACCOUNTING FOR FISCAL INTERACTIONS 7
D. DISTRIBUTIONAL CONSIDERATIONS 8
Distributional Impacts Across Household Income Groups9
Distributional Impacts on Energy-Intensive Firms9
E. SUMMARY 10
III. DESIGNING A DOMESTIC CO TAX11
2
A. TAX LEVEL 11
B. FURTHER DESIGN ISSUES 13
Point of Regulation 13
International Emissions Leakage and Competitiveness 14
Non-CO GHGs15
2
Incentives for Downstream Sequestration15
Complementary Policies to Promote Technological Innovation16
C. SUMMARY 17
IV. CO TAXES AT A GLOBAL LEVEL 17
2
A. COST-EFFECTIVENESS 17
B. EQUITY 18
C. BROAD COUNTRY P
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