Memorandum,
Oslo University, Department of Economics

Abstract: A sufficiently rapidly rising carbon tax may increase near-term emissions compared with the case of no carbon tax. Even so, such a carbon tax path may reduce total costs related to climate change, since the tax may reduce total carbon extraction. A government cannot commit to a speci.c carbon tax rate in the distant future. For reasonable assumptions about expectation formation, a higher present carbon tax will reduce near-term carbon emissions. Moreover, whatever the expectations about future tax rates are, near-term emissions will decline for a sufficiently high carbon tax. However, if the near-term tax rate for some reason is set below its optimal level, increased concern for the climate may change taxes in a manner that increases near-term emissions.

Keywords: climate change; exhaustible resources; green paradox; carbon tax

JEL-codes: Q31; Q38; Q41; Q48; Q54; Q58

26 pages, January 3, 2011

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Memo-13-2010.pdf  

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