The key feature is that the carbon tax be steep on the margin, that the rebate be per capita (no means testing or "poor" qualification), i.e., a block transfer. That combination will move behavior away from carbon-inducing activities; compensation as a % of income will be highest for the poor. (Gov't "schemes" to spend the taxes will almost always go wrong...)and here's a two-page piece [PDF] that gives an excellent summary of the benefits of a tax over cap and trade (easier to implement) and 100% rebate over government choosing where to put the money (less corruption). Great job, Professor Hansen!
17 June 2008
The Economist Blows It
This week's Buttonwood missed the target with its analysis of a tax and rebate scheme for global warming. By getting tangled in means-testing and marginal tax rates, they failed to suggest a simple system of high carbon tax combined with a per capita rebate. Here's what I said: