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Review of Environmental Economics and Policy Advance Access originally published online on November 6, 2008
Review of Environmental Economics and Policy 2009 3(1):63-83; doi:10.1093/reep/ren015
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© The Author 2008. Published by Oxford University Press on behalf of the Association of Environmental and Resource Economists. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions

Gilbert E. Metcalf*

* Department of Economics, Tufts University; E-mail: gmetcalf{at}tufts.edu.

This article describes a revenue and distributionally neutral approach to reducing U.S. greenhouse gas emissions that uses a carbon tax. The revenue from the carbon tax is used to finance an environmental earned income tax credit designed to be distributionally neutral. The credit is linked to earned income and helps offset the regressivity of the carbon tax. The carbon tax reform proposal is also revenue neutral and avoids conflating carbon policy with debates over the appropriate size of the federal budget. The article provides a distributional analysis of the proposal and also makes a number of political, economic, and administrative arguments in favor of a carbon tax and responds to the arguments that have commonly been made against using a tax-based approach to reducing U.S. emissions.

JEL Classification: H23, Q54

Aparna Mathur and Wei Yao provided excellent assistance with CES calculations. Rob Stavins and an anonymous referee made useful suggestions that have improved the paper. I am also grateful to the Hamilton Project at Brookings for providing financial support for this research.


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