Carbon pricing; conclusion and directions for further policy development
The discussion in this book centers on targeted policies to promote renewable energy resources and reduce global greenhouse gas (GHG) emissions as one of many policy goals. For decades, economists, scientists, policymakers and businesses have promoted an alternative strategy to reduce GHG emissions: imposing a direct carbon price on fossil fuel-fired sources of electricity generation and transportation fossil fuels. A carbon price does not directly promote renewable energy, although in practice it can have this effect, by raising the price of fossil fuels. Proponents view it as one of the most important decarbonization policies, with the promise to deliver large emission reductions and to stimulate renewable energy growth. In this section, a carbon pricing scheme is labeled a “carbon tax” if that is part of its actual name. However, unlike traditional sales, VAT or income taxes, a carbon price primarily aims to reduce GHG emissions, not raise revenue. It may increase revenue (for example, from the proceeds generated by the auction of allowances in cap-and-trade systems, described below), and proposals abound to use this revenue in a wide variety of productive endeavors.
Many economists and other scholars have long advocated for carbon pricing as an optimal means of reducing emissions and spurring the transition to a decarbonized economy. They believe it is the most efficient way to account for the costs associated with GHG emissions and associated climate change impacts. The market price of energy, such as prevailing prices in wholesale electricity markets, drives business decisions. Because the...
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