Carbon Pricing: Some Problems and Solutions

Abstract

In this chapter is about carbon pricing. Carbon pricing is one solution that governments use to tackle climate change. It puts a price on carbon, which enables the market to internalize the negative externality caused by carbon emitting actions. The result is that such harmful actions are reduced due to the higher price charged. Structuring carbon pricing policies can be complicated, though. Several problematic questions come to mind: What form should the carbon policy take? What price should be charged? Should the tax be imposed upstream or downstream? What should governments do with the carbon revenue they receive? Will there be carbon leakage further down the road? What about existing policies that subsidize the use of fossil fuels? Chapter 5 examines these seven cumbersome areas and provides possible solutions to achieve a good carbon pricing policy. It is hoped that carbon policies will not only be effective in mitigating climate change, but also equitable and progressive for citizens, which enable political support for the policy, making it more feasible to implement.