Carbon Tax and Carbon Credits, Harvard University, International Economy and Business, August 10, 2011

1. CARBON TAX AND CREDITS Presentation by: Robert Wensley and Jean Yang International Economy and Business August 10, 2011

2. Global CO2 Emissions Since 1820 http://www.bit.ly/nzwFCa

4. 21st century - temperatures expected to rise 2.7 to 3.4 degrees Fahrenheit.

5. As temperatures rise – glaciers will melt, sea levels will rise, the pattern of precipitation will change, and deserts will expand.

8. PMC = Private Marginal Cost (cost to individual)

10. PMC = Private Marginal Cost (cost to individual)

12. Country’s emissions are “capped”

13. Carbon Credit Market (e.g., European Trading Scheme)

14. Countries that surpass cap must purchase credits from other countries.

15. Countries that do not reach gap may sell excess credits to other countries.

16. Allow market mechanisms to reduce carbon emissions

19. Carbon emissions vary by fuel:

20. Coal – High

21. Oil – Mid

22. Natural Gas - Low

24. Administrating the tax.

25. Estimating what the tax should be: the social cost of carbon emissions.

26. Possible low price elasticity.

28. 10% price increase reduces fuel consumption 3% in a year or two, and 7% in five to ten years.(Lipow 2008; Litman 2008a)

30. Implementation: Broad Gradual Predictable Structured

33. Benchmarking makes cap-and-trade mechanisms ineffective

35. Global carbon price needed.

36. Provisions necessary for retaliatory action against imports from carbon free‐riding nations (to avoid trade anarchy).

37. Governments responsible for spending tax revenue will allow countries to:

38. Make the tax revenue‐neutral

39. Finance the transition to a green economy