Symposium: perspectives on carbon taxes – introduction

With this issue of Fiscal Studies, we inaugurate a new section entitled ‘Symposia’. This new section will publish commissioned papers from leading scholars and policy analysts on issues of topical importance to public economics and microeconomic policy. In some cases these symposia will emphasise policy issues, while in other cases contributions will emphasise methodological issues, and sometimes both. Over the course of future symposia, papers will be more diverse in format and content than traditional research papers. A common thread running through the papers will be perspectives guided by rigorous research evidence, but with the aim of reaching a broad audience across the research, policy and stakeholder communities.

In this inaugural issue we focus on global climate change, and in particular on policies and practices to tax carbon emissions within and across borders. Economists have, in general, been highly supportive of carbon-based taxation as a mechanism to efficiently reduce greenhouse gas emissions. However, the implementation of such a tax is challenging when spillover effects across state and national borders are considered. The first paper in the symposium, which is by Michael Keen of the University of Tokyo along with Ian Parry and James Roaf of the International Monetary Fund, examines the design, rationale and potential impact of a border carbon adjustment. The fundamental concern of unilateral action on carbon pricing is that others will free ride on the policy, thus potentially harming domestic producers and consumers vis-à-vis trading partners. The authors propose a border carbon adjustment that assesses a charge (either direct taxation or tradable pollution permits) on the carbon content of imported products. The intent is that the charge will be equivalent to domestic carbon pricing, and with the option of rebates for the carbon content of exports. The paper first spells out the theoretical and practical motivations for a border carbon adjustment and then proposes a series of design options to provide guidance to policymakers.

The second paper in the symposium, which is by Stuart Adam, Isaac Delestre, Peter Levell and Helen Miller, all of the Institute for Fiscal Studies, documents the patchwork of current tax and subsidy programmes that aim to mitigate greenhouse gas emissions in the United Kingdom, and examines how these have created oftentimes conflicting incentives and distortions for households and firms to reduce their carbon emissions. The authors calculate implied carbon taxes levied by source and user of energy and show, for instance, that businesses are taxed more heavily than households, but that energy-intensive industries face lower carbon tax rates than other businesses; emissions from long-haul air travel are lightly taxed when compared with those from short-haul air travel, and for those flying first class the implied carbon tax rate is still lower. On this, the UK is not exceptional; rather, inconsistencies in the taxation of carbon emissions across different sources and users are common to many countries. In some cases, governments may find it desirable to deviate from a uniform carbon tax rate. The authors show that distributional considerations and other concerns may help justify some, but not all, of the variation in carbon prices, and argue for the rationalisation of carbon taxation.

The papers in this first symposium highlight some of the challenges facing nations as they grapple with the most pressing and far-reaching economic challenge of our time. It is our hope that the papers in the issue, and in future symposia, will not only spur additional research, but will also make a meaningful and timely contribution to the public discussion of key topical issues, and serve as a platform to inform policymakers of best practices and policies based on the evidence.