Will Carbon Taxes Help Address Climate Change?

Abstract:

The coronavirus disease 2019 (COVID-19) crisis confronts us with the costs of failure to consider long-term risks, such as climate change. It is imperative to consider the merits of policies that may help to limit climate damages. This policy comment rebuts three common objections to carbon taxes: (1) that they do not change behavior; (2) that they generate unfair burdens and increase inequality; and (3) that fundamental systemic change is needed instead of carbon taxes. The responses are (1) there is both theoretical and empirical reason to think that carbon taxes do change behavior, with larger taxes changing it to a greater extent; (2) that undistributed carbon taxes are regressive but distributing the tax receipts can alleviate that regressivity (and, in many cases, make the overall effect progressive); and (3) while small changes for increasing democratic decision-making may be helpful, (fundamental) change takes time and the climate crisis requires urgent action.