Achieving Environmental Sustainability through Fiscal Policy
Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Julsuchada Sirisom, Hope Ashiabor and Janet E. Milne
Chapter 7: Carbon Tax Policy Progress in North-east Asia
Xianbing Liu, Kazunori Ogisu, Sunhee Suk and Tomohiro Shishime 1. INTRODUCTION Both carbon tax policy and cap and trade schemes aim to discourage the use of fossil fuels by making carbon emissions more costly. Many economists support a carbon tax due to its advantages over an emissions trading scheme (ETS). Carbon tax can be levied upon carbon emissions from all sectors while an ETS requires accurate monitoring of emissions, and thus is only applicable to large emitters. Fair allocation of carbon credits is almost impossible in an ETS. Uncertain carbon prices in an ETS cause companies to become myopic and thereby discourage their reduction efforts. Conversely, a ﬁxed carbon tax rate is more straightforward for companies and allows them to make decisions for the medium and long term. Additionally, it is easier to minimize the number of losers by using carbon tax revenues, either to reduce other taxes or to lower the burden on energy-intensive sectors. Recently, several famous economists have even argued that an international carbon tax is systematically better and could be agreed upon more easily as a post-Kyoto scheme than a global cap and trade scheme (e.g. Mankiw, 2007). Carbon tax was ﬁrst introduced in Finland in 1990 and then levied in some other European countries, such as Sweden, Norway, the Netherlands and Denmark. Although obvious differences were found between the carbon tax policies implemented in Europe (Cansier and Krumm, 1997), they have shown broadly positive effects in reducing the use of fossil fuels and CO2 emissions...
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