To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming

How can countries best coordinate their policies to slow global warming? This study reviews different approaches to the political and economic control of global public goods such as global warming. It compares quantity-oriented mechanisms like the Kyoto Protocol with price-type control mechanisms such as internationally harmonized carbon taxes. The analysis focuses on such issues as the relationship to ultimate targets, performance under conditions of uncertainty, volatility of induced carbon prices, the inefficiencies of taxation and regulation, potential for corruption and accounting finagling, and ease of implementation. It concludes that price-type approaches such as carbon taxes have major advantages for slowing global warming. Before discussing different approaches, it will be useful to sketch the scientific basis for concerns about global warming. As a result of the buildup of atmospheric greenhouse gases (GHGs), it is expected that significant climate changes will occur in the coming decades and beyond. The major industrial GHGs are carbon dioxide (CO2), methane, ozone, nitrous oxides, and chlorofluorocarbons (CFCs). Using climate models as well as examining past climate variations, scientists expect significant climatic changes in the coming years. Current estimates are that an increase that doubles the amount of CO2 or the equivalent in the atmosphere compared with preindustrial levels will, in equilibrium, lead to an increase in the global surface temperature of 1.5–4.5◦C, an increase in precipitation and evaporation, and a rise in sea levels of 10–90 cm over this century. Some models also predict regional shifts, such as hotter and drier climates in midcontinental regions, such as the U.S. Midwest. Climate monitoring indicates that the predicted global warming is occurring in line with scientific predictions.1 While scientists have been analyzing global warming for more than half a century, nations took the first formal steps to slow global warming only about fifteen years ago, under the United Nations Framework Convention on Climate Change (FCCC). The first binding international agreement on climate change, the Kyoto Protocol, came into effect in