| Abstract: |
A carbon tax provides certainty about the price of emissions, but it does so
in a context characterized by uncertainty about its environmental benefits,
economic costs, and international relations implications. Given current
knowledge, suppose that the government sets a carbon tax schedule. In the
future, a higher (lower) carbon tax could be justified by the resolution of
uncertainty along the following ways: climate change turns out to be worse
(better) than current projections; the economic costs of a carbon tax are
lower (higher) than expected; other major economies implement more (less)
ambitious carbon mitigation programs. This paper describes the design of a
predictable process for updating the carbon tax in light of new information.
Under this "structured discretion" approach, every five years the president
would recommend an adjustment to the carbon tax based on analyses by the
Environmental Protection Agency, the Department of the Treasury, and the
Department of State on the environmental, economic, and diplomatic dimensions
of climate policy. Similar to the expedited, streamlined consideration of
regulations under the Congressional Review Act and trade deals under trade
promotion authority, Congress would vote up or down on the presidential
recommendation for a carbon tax adjustment, without the prospect of filibuster
or amendment. This process could be synchronized with the timing of updating
of nationally determined contributions under the Paris Agreement in a manner
to leverage greater emissions mitigation ambition by other countries in future
pledging rounds. The communication of guiding information and the latest data
and analysis could serve as "forward guidance" for carbon tax adjustments,
akin to the Federal Reserve Board's communication strategy. |