Cap-and-Trade or Carbon Taxes? The Feasibility of Enforcement and the Effects of Non-Compliance

Arbeitspapier

One of the proposed alternatives to Kyoto's cap-and-trade approach is a regime based on an internationally harmonized carbon tax. In this paper, we consider and compare the enforcement problems associated with a tax regime and a cap-and-trade regime, respectively. The paper tries to convey two main points. First, both types of regime require an effective enforcement mechanism. However, such a mechanism is unlikely to be adopted as part of a regime with full participation, because the political process leading up to its adoption tends to water down the enforcement mechanism to a point where it no longer has much bite. And even if this is somehow avoided, countries expecting compliance to be difficult or costly will almost certainly decline to sign - not to mention ratify - the resulting agreement. Second, the implications of non-compliance in a tax regime differ in important ways from the corresponding implications in a cap-and-trade regime. In a cap-and-trade regime emissions trading can make inaction legitimate for buyers of emission permits. In particular, overselling of permits by one (or a few) permit exporting countries might completely undermine the regime's environmental effect. In a tax regime, by contrast, one country's non-compliance can not make inaction by other countries legitimate. It follows that an agreement based on a harmonized carbon tax will always have some effect, provided that at least one country complies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Papers ; No. 436

Classification and Topics

• Classification: Wirtschaft ; Nonrenewable Resources and Conservation: General ; Energy: Demand and Supply; Prices
• Subject: Climate agreements ; compliance ; enforcement ; emissions trading ; carbon taxes.

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hovi, Jon ; Holtsmark, Bjart
• Event: Veröffentlichung
• (who): Statistics Norway, Research Department
• (where): Oslo
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/192418
• Last update: 17.04.2025, 9:03 PM CEST