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Instrument Choice, Carbon Emissions, And Information, Michael Wara

Michigan Journal of Environmental & Administrative Law

This Article examines the consequences of a previously unrecognized difference between pollutant cap-and-trade schemes and pollution taxes. Implementation of cap-and-trade relies on a forecast of future emissions, while implementation of a pollution tax does not. Realistic policy designs using either regulatory instrument almost always involve a phase-in over time to avoid economic disruption. Cap-and-trade accomplishes this phase-in via a limit on emissions that falls gradually below the forecast of future pollutant emissions. Emissions taxation accomplishes the same via a gradually increasing levy on pollution. Because of the administrative complexity of establishing an emissions trading market, cap-and-trade programs typically require between …