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Some of these international jurisdictions could be especially promising opportunities for emission reductions because their value added tax rates are much higher than state sales tax rates in the United States, meaning that the revenue-equivalent carbon tax rate would likely be higher. Initiative 732 (I-732) was revenue-neutral, meaning that money from the carbon tax was offset by tax reductions elsewhere, principally a reduction in the regressive state sales tax, but also an Earned Income Tax Credit match for low-income working families, plus business tax cuts for manufacturers to help them stay competitive. Fourth, state tax data show that the amount of revenue generated by taxes on electricity (about 2 percent of total state revenue) is equal to or less than the revenue that would be generated from imposing sales taxes on groceries, so budget-based opposition to a Climate Action Tax Cut should logically lead to opposition to sales tax exemptions for groceries. This commentary describes one such opportunity: the Climate Action Tax Cut, a policy that can work in many US states, some municipalities, and at the national level in countries that levy Value Added Tax (VAT) on residential electricity consumption. [Extracted from the article]

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The small but stubbornly unyielding possibility of a very large long-term response of global temperature to increases in atmospheric carbon dioxide can be termed the fat tail of high climate sensitivity. Recent economic analyses suggest that the fat tail should dominate a rational policy strategy if the damages associated with such high temperatures are large enough. The conclusions of such analyses, however, depend on how economic growth, temperature changes, and climate damages unfold and interact over time. In this paper we focus on the role of two robust physical properties of the climate system: the enormous thermal inertia of the ocean, and the long timescales associated with high climate sensitivity. Economic models that include a climate component, and particularly those that focus on the tails of the probability distributions, should properly represent the physics of this slow response to high climate sensitivity, including the correlated uncertainty between present forcing and climate sensitivity, and the global energetics of the present climate state. If climate sensitivity in fact proves to be high, these considerations prevent the high temperatures in the fat tail from being reached for many centuries. A failure to include these factors risks distorting the resulting economic analyses. For example, we conclude that fat-tail considerations will not strongly influence economic analyses when these analyses follow the common-albeit controversial-practices of assigning large damages only to outcomes with very high temperature changes and of assuming a significant baseline level of economic growth. [ABSTRACT FROM AUTHOR]

The existing literature models innovation in pollution control as a reduction in marginal abatement costs. We show that this assumption is inappropriate for production process innovations such as fuel switching. Algebraically, we examine the effects of different innovation types on marginal abatement cost curves, showing that some desirable innovations increase marginal abatement costs. Empirically, we estimate marginal abatement costs for sulfur dioxide by measuring the output distance function for electric power in Korea. Regression results confirm that production process innovations did raise marginal abatement costs in this case. One policy implication: economic instruments do not always provide stronger innovation incentives than command-and-control policies. [ABSTRACT FROM AUTHOR]

The Kaldor-Hicks (KH) criterion has long been the standard for benefit-cost analyses, but it has also been widely criticized as ignoring equity and, arguably, moral sentiments in general. We suggest the use of an aggregate measure (KHM) instead of KH, where M stands for moral sentiments. KHM simply adds to the traditional KH criterion the requirement that all goods for which there is a willingness to pay or accept count as economic goods. This addition, however, runs up against objections to counting moral sentiments in general and non-paternalistic altruism in particular. We show these concerns are unwarranted and suggest that the KHM criterion is superior to KH because it provides better information. [ABSTRACT FROM AUTHOR]

In this paper, we explore how principles of economics courses prepare undergraduate students to think about climate change. We collected a comprehensive list of twenty-seven introductory economics textbooks in the United States and analyzed their coverage of climate change. Our finding shows that not all texts touch upon climate science, and a small subset deviates from the scientific consensus on the human causes of climate change. All texts conceptualize climate change as a problem of carbon emission's negative externalities and the preferred market-based solutions, such as emission trading and Pigouvian tax. Besides externality, some authors include various useful points of engagement through GDP (Gross domestic product) accounting, economic growth, collective action problems, cost–benefit analysis, and global inequality. In the end, we provide suggestions for economics educators to innovate the current introductory curriculum to better cope with the climate crisis. [ABSTRACT FROM AUTHOR]