Globally and locally, government support policies for green goods (like renewable energy) are much more popular internationally than raising the cost of bads (as through carbon taxes). These support policies may encourage downstream consumption (renewable energy deployment) or upstream development and manufacturing of those technologies. The use of subsidies — particularly upstream ones — is disciplined by World Trade Organization agreements, and its subsidies code lacks exceptions for transboundary externalities such as human health or resource conservation, including those related to combating global climate change. The strategic trade literature has devoted little attention to the range of market failures related to green goods. This paper considers the market for a new environmental good that when consumed downstream may provide external benefits such as reduced emissions. The technology is traded internationally but provided by a limited set of upstream suppliers that may operate in imperfect markets, such as with market power or external scale economies. We examine the national incentives and global rationales for offering production and consumption subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Although technology producer countries can benefit from restraints on upstream subsidies, global welfare is higher without them, and market failures imply that optimal subsidies are even higher. We supplement the analysis with numerical simulations of the case of renewable energy, exploring optimal subsidies for the major renewable energy producing and consuming regions and the cost of restrictions on upstream subsidies.
{"title":"Strategic Subsidies for Green Goods","authors":"C. Fischer","doi":"10.2139/ssrn.2771025","DOIUrl":"https://doi.org/10.2139/ssrn.2771025","url":null,"abstract":"Globally and locally, government support policies for green goods (like renewable energy) are much more popular internationally than raising the cost of bads (as through carbon taxes). These support policies may encourage downstream consumption (renewable energy deployment) or upstream development and manufacturing of those technologies. The use of subsidies — particularly upstream ones — is disciplined by World Trade Organization agreements, and its subsidies code lacks exceptions for transboundary externalities such as human health or resource conservation, including those related to combating global climate change. The strategic trade literature has devoted little attention to the range of market failures related to green goods. This paper considers the market for a new environmental good that when consumed downstream may provide external benefits such as reduced emissions. The technology is traded internationally but provided by a limited set of upstream suppliers that may operate in imperfect markets, such as with market power or external scale economies. We examine the national incentives and global rationales for offering production and consumption subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Although technology producer countries can benefit from restraints on upstream subsidies, global welfare is higher without them, and market failures imply that optimal subsidies are even higher. We supplement the analysis with numerical simulations of the case of renewable energy, exploring optimal subsidies for the major renewable energy producing and consuming regions and the cost of restrictions on upstream subsidies.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114814344","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-03-01DOI: 10.5547/01956574.38.SI1.LDAV
Lucas W. Davis
Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs from global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. These external costs are in addition to conventional deadweight loss, estimated to be $26 billion annually. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents and only indirectly address carbon dioxide and local pollutants.
{"title":"The Environmental Cost of Global Fuel Subsidies","authors":"Lucas W. Davis","doi":"10.5547/01956574.38.SI1.LDAV","DOIUrl":"https://doi.org/10.5547/01956574.38.SI1.LDAV","url":null,"abstract":"Despite increasing calls for reform many countries continue to provide subsidies for gasoline and diesel. This paper quantifies the external costs from global fuel subsidies using the latest available data and estimates from the World Bank and International Monetary Fund. Under preferred assumptions about supply and demand elasticities, current subsidies cause $44 billion in external costs annually. This includes $8 billion from carbon dioxide emissions, $7 billion from local pollutants, $12 billion from traffic congestion, and $17 billion from accidents. These external costs are in addition to conventional deadweight loss, estimated to be $26 billion annually. Government incentives for alternative fuel vehicles are unlikely to cost-effectively reduce these externalities as they do little to address traffic congestion or accidents and only indirectly address carbon dioxide and local pollutants.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128468854","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Incentive-based policies, such as emissions taxes and emissions permit trading schemes, are increasingly used to regulate greenhouse gas (GHG) emissions in many jurisdictions around the world. Taxes impose a fixed price on emissions, whereas under tradable permit schemes prices emerge in the secondary permit market. The delayed price discovery under tradable permit schemes creates uncertainty about the future cost of compliance that liable emitters will face. To mitigate this uncertainty, some jurisdictions, including Australia, have designed policies to regulate GHG emissions that commence with an emissions tax that is in force for several years, subsequently transforming into a tradable permit scheme. This paper examines the effects that this type of staged transition – from no regulation to a regulation by an emissions tax, to a regulation by tradable permits – has on several criteria of interest: abatement investment, quantity of emissions, permit prices and overall regulation efficiency. The effects of the regulation that employs an intertemporal mix of policy instruments are compared to the effects observable under regulation using single policy instrument: a tax only, and a tradable permit only regulation. Economics experiments in a laboratory were used to study economic behaviour under these three types of regulation. The findings suggest that a regulation based on a staged transition from a tax to a tradable permit scheme results in more socially desirable outcomes on a range of criteria when compared to a regulation based solely on tradable permits.
{"title":"Regulating Greenhouse Gas Emissions by an Inter-Temporal Policy Mix: An Experimental Investigation","authors":"T. Ancev, Rimvydas Baltaduonis, Elizabeth Bernold","doi":"10.2139/ssrn.3243540","DOIUrl":"https://doi.org/10.2139/ssrn.3243540","url":null,"abstract":"Incentive-based policies, such as emissions taxes and emissions permit trading schemes, are increasingly used to regulate greenhouse gas (GHG) emissions in many jurisdictions around the world. Taxes impose a fixed price on emissions, whereas under tradable permit schemes prices emerge in the secondary permit market. The delayed price discovery under tradable permit schemes creates uncertainty about the future cost of compliance that liable emitters will face. To mitigate this uncertainty, some jurisdictions, including Australia, have designed policies to regulate GHG emissions that commence with an emissions tax that is in force for several years, subsequently transforming into a tradable permit scheme. This paper examines the effects that this type of staged transition – from no regulation to a regulation by an emissions tax, to a regulation by tradable permits – has on several criteria of interest: abatement investment, quantity of emissions, permit prices and overall regulation efficiency. The effects of the regulation that employs an intertemporal mix of policy instruments are compared to the effects observable under regulation using single policy instrument: a tax only, and a tradable permit only regulation. Economics experiments in a laboratory were used to study economic behaviour under these three types of regulation. The findings suggest that a regulation based on a staged transition from a tax to a tradable permit scheme results in more socially desirable outcomes on a range of criteria when compared to a regulation based solely on tradable permits.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129480178","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Unitary Taxation in the Extractive Industry Sector","authors":"Erika Siu, S. Picciotto, J. Mintz, A. Sawyerr","doi":"10.2139/SSRN.2634008","DOIUrl":"https://doi.org/10.2139/SSRN.2634008","url":null,"abstract":"unitary taxation; formulary apportionment; combined reporting; extractive industries; natural resource taxation; royalties; US state corporate income tax system; Canada provincial corporate income tax system.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"149 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132969933","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the magnitude of these externalities, and corrective energy taxes, on a country-by-country basis are then described. The implications for reforming energy taxes, and the potential environmental, health, and fiscal benefits from reform, are then discussed. A theme of the paper is the critical role of finance ministries in administering tax reforms and ensuring efficient use of revenues.
{"title":"Designing Fiscal Policy to Address the External Costs of Energy","authors":"I. Parry","doi":"10.1561/101.00000065","DOIUrl":"https://doi.org/10.1561/101.00000065","url":null,"abstract":"This paper first reviews the conceptual case for, and appropriate design of, fiscal policies to address major externalities associated with energy use — global warming, local air pollution, and various side effects (e.g., congestion) from motor vehicles. Techniques for (roughly) estimating the magnitude of these externalities, and corrective energy taxes, on a country-by-country basis are then described. The implications for reforming energy taxes, and the potential environmental, health, and fiscal benefits from reform, are then discussed. A theme of the paper is the critical role of finance ministries in administering tax reforms and ensuring efficient use of revenues.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114455781","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A long period of rig scarcity and high rates has led to innovation in the procurement of rig services and in relationships between oil companies and rig contractors. Discussions have been conducted on joint ventures between companies and contractors, for instance. This paper describes and analyses such a solution from a taxation perspective. Could a joint venture pose problems for revenue capture from the petroleum sector? Challenges in taxing drilling services - including recently adopted British restrictions on determining internal charter rates for drilling units - are also analysed. In addition to analysing topical issues related to taxation and rigs, the paper makes a general contribution by highlighting the connection between taxing rig services at oil-company and rig-contractor levels, and by placing rig taxation in a broader resource management perspective.
{"title":"Rig Services and Taxation","authors":"Petter Osmundsen","doi":"10.2139/ssrn.2506552","DOIUrl":"https://doi.org/10.2139/ssrn.2506552","url":null,"abstract":"A long period of rig scarcity and high rates has led to innovation in the procurement of rig services and in relationships between oil companies and rig contractors. Discussions have been conducted on joint ventures between companies and contractors, for instance. This paper describes and analyses such a solution from a taxation perspective. Could a joint venture pose problems for revenue capture from the petroleum sector? Challenges in taxing drilling services - including recently adopted British restrictions on determining internal charter rates for drilling units - are also analysed. In addition to analysing topical issues related to taxation and rigs, the paper makes a general contribution by highlighting the connection between taxing rig services at oil-company and rig-contractor levels, and by placing rig taxation in a broader resource management perspective.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"83 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116231714","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
L. Lambertini, Joanna Poyago-Theotoky, A. Tampieri
We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions ("green" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in "green" R&D. When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.
{"title":"Cournot Competition and 'Green' Innovation: An Inverted-U Relationship","authors":"L. Lambertini, Joanna Poyago-Theotoky, A. Tampieri","doi":"10.2139/ssrn.2458843","DOIUrl":"https://doi.org/10.2139/ssrn.2458843","url":null,"abstract":"We examine the relationship between competition and innovation in an industry where production is polluting and R&D aims to reduce emissions (\"green\" innovation). We present an n-firm oligopoly where firms compete in quantities and decide their investment in \"green\" R&D. When environmental taxation is exogenous, aggregate R&D investment always increases with the number of firms in the industry. Next we analyse the case where the emission tax is set endogenously by a regulator (committed or time-consistent) with the aim to maximise social welfare. We show that an inverted-U relationship exists between aggregate R&D and industry size under reasonable conditions, and is driven by the presence of R&D spillovers.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"65 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124203036","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.
{"title":"Vertical Fiscal Externalities and the Environment","authors":"Christoph Böhringer, N. Rivers, H. Yonezawa","doi":"10.2139/ssrn.2519170","DOIUrl":"https://doi.org/10.2139/ssrn.2519170","url":null,"abstract":"We show that imposition of a state-level environmental tax in a federation crowds out preexisting federal taxes. We explain how this vertical fiscal externality can lead unilateral statelevel environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that - as a consequence of vertical fiscal externalities - state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130285680","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Australia is falling behind the international trend towards low carbon transport to reduce greenhouse gas (GHG) emissions. For instance, in 2012 the Australian Government forecasts that road transport emissions will continue to increase to 2020 and then slow to 2030 because of higher oil prices and the introduction of mandatory CO2 emissions standards. The forecast assumes vehicle efficiencies of petrol and diesel engines will improve, and there will be a gradual shift to alternative technologies. However, in 2007 the European Union found that while advances in vehicle technology had delivered most of the carbon reductions, these advances were offset by new cars that had become significantly more powerful, larger, and heavier. This is the case in Australia. The paper shows how Australia can accelerate the uptake of low carbon technology through reforming existing vehicle taxes into an environmental related tax. The reform will require basing the tax on CO2 emissions from previously being based on the vehicles technical characteristics such as cylinder capacity, engine size and fuel type. The literature supports the reform of vehicle taxes into an environmental tax, which was found to be a powerful instrument in influencing the purchase decisions of consumers. Specifically, the paper examines the literature and reviews the ex post evidence on the successful reform of vehicles taxes. In the case study of Ireland, it was found that the reformed vehicle taxes based on CO2 emissions provided a strong price signal, and consumer response was greater than anticipated. As a result, Ireland's ambitious targets in reducing its GHG emissions were met. The paper provides evidence to Australia's policy makers, consultants and car manufacturers that reforming existing vehicle taxes into an environmental related tax is an effective measure in transitioning Australia into a low carbon transport and reducing road transport emissions.
{"title":"Reforming Vehicle Taxes on New Car Purchases Can Reduce Road Transport Emissions -- Ex Post Evidence.","authors":"Anna Mortimore","doi":"10.2139/ssrn.2479142","DOIUrl":"https://doi.org/10.2139/ssrn.2479142","url":null,"abstract":"Australia is falling behind the international trend towards low carbon transport to reduce greenhouse gas (GHG) emissions. For instance, in 2012 the Australian Government forecasts that road transport emissions will continue to increase to 2020 and then slow to 2030 because of higher oil prices and the introduction of mandatory CO2 emissions standards. The forecast assumes vehicle efficiencies of petrol and diesel engines will improve, and there will be a gradual shift to alternative technologies. However, in 2007 the European Union found that while advances in vehicle technology had delivered most of the carbon reductions, these advances were offset by new cars that had become significantly more powerful, larger, and heavier. This is the case in Australia. The paper shows how Australia can accelerate the uptake of low carbon technology through reforming existing vehicle taxes into an environmental related tax. The reform will require basing the tax on CO2 emissions from previously being based on the vehicles technical characteristics such as cylinder capacity, engine size and fuel type. The literature supports the reform of vehicle taxes into an environmental tax, which was found to be a powerful instrument in influencing the purchase decisions of consumers. Specifically, the paper examines the literature and reviews the ex post evidence on the successful reform of vehicles taxes. In the case study of Ireland, it was found that the reformed vehicle taxes based on CO2 emissions provided a strong price signal, and consumer response was greater than anticipated. As a result, Ireland's ambitious targets in reducing its GHG emissions were met. The paper provides evidence to Australia's policy makers, consultants and car manufacturers that reforming existing vehicle taxes into an environmental related tax is an effective measure in transitioning Australia into a low carbon transport and reducing road transport emissions.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"165 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134541982","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Illinois is faced with seemingly insurmountable fiscal problems. Public pensions are still not out of the woods. Bills aren’t getting paid on time. The state’s credit rating is in the dungeon. Ideas for curing the state’s fiscal illness are many, and nearly every one of them predictably includes the need to raise more money, reduce spending, or a combination of both. One way to raise more money would be to “tax waste, not work” by creating a cap-and-trade policy for greenhouse gases (GHG). We explore that option here. A cap-and-trade program has the potential to raise significant revenue because almost half of the electricity generated in Illinois comes from coal-fired power plants (see Figure 1). We calculate that permit auctions could raise $1 billion to $4 billion per year, with a reasonable estimate of $2 billion in the initial years. Figure 2 shows that this $2 billion would balance the budget in FY2015, and fill almost half of the projected deficits for fiscal years 2016-2018. Illinois has a significant fiscal crisis, with projections for multi-billion dollar budget deficits. Yet, a reasonable cap-and-trade program to reduce greenhouse gas emissions could significantly reduce future deficits. Specifically, under a program similar to California’s AB-32, a full auction protocol could raise $2 billion annually in the initial years of a cap-and-trade program. Most of the economic burden of the program would fall on stockholders of the covered industries, and most of those stockholders live outside Illinois. In addition, Illinois businesses could gain experience operating in a GHG-limited environment ahead of possible future federal limits. Illinois researchers could invent patentable technologies that other states and countries would want in their later efforts to reduce GHGs. Implementing a revenue-raising cap-and-trade program mitigates the need to revoke the sunset provisions on the income and corporate tax rates or to increase the state’s sales tax.
{"title":"A Permit Trading Program for Carbon Dioxide (Cap and Trade)","authors":"D. Fullerton, Daniel H. Karney","doi":"10.2139/ssrn.3895113","DOIUrl":"https://doi.org/10.2139/ssrn.3895113","url":null,"abstract":"Illinois is faced with seemingly insurmountable fiscal problems. Public pensions are still not out of the woods. Bills aren’t getting paid on time. The state’s credit rating is in the dungeon. Ideas for curing the state’s fiscal illness are many, and nearly every one of them predictably includes the need to raise more money, reduce spending, or a combination of both. One way to raise more money would be to “tax waste, not work” by creating a cap-and-trade policy for greenhouse gases (GHG). We explore that option here. A cap-and-trade program has the potential to raise significant revenue because almost half of the electricity generated in Illinois comes from coal-fired power plants (see Figure 1). We calculate that permit auctions could raise $1 billion to $4 billion per year, with a reasonable estimate of $2 billion in the initial years. Figure 2 shows that this $2 billion would balance the budget in FY2015, and fill almost half of the projected deficits for fiscal years 2016-2018. Illinois has a significant fiscal crisis, with projections for multi-billion dollar budget deficits. Yet, a reasonable cap-and-trade program to reduce greenhouse gas emissions could significantly reduce future deficits. Specifically, under a program similar to California’s AB-32, a full auction protocol could raise $2 billion annually in the initial years of a cap-and-trade program. Most of the economic burden of the program would fall on stockholders of the covered industries, and most of those stockholders live outside Illinois. In addition, Illinois businesses could gain experience operating in a GHG-limited environment ahead of possible future federal limits. Illinois researchers could invent patentable technologies that other states and countries would want in their later efforts to reduce GHGs. Implementing a revenue-raising cap-and-trade program mitigates the need to revoke the sunset provisions on the income and corporate tax rates or to increase the state’s sales tax.","PeriodicalId":176966,"journal":{"name":"ERN: Externalities; Redistributive Effects; Environmental Taxes & Subsidies (Topic)","volume":"120 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2014-02-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115681290","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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