BPEA | 1992: Microeconomics

Carbon Taxes and Economic Welfare

Microeconomics 1992

THE POSSIBILITY THAT INCREASED concentrations of carbon dioxide in the atmosphere might lead to global warming has emerged as a leading environmental concern. Many nations, including the United States, are considering policies to reduce emissions of carbon dioxide. The policy instrument for reducing carbon dioxide emissions most often recommended by economists is a carbon tax. A carbon tax, levied on fossil fuels in proportion to the amount of carbon dioxide they produce during combustion, would stimulate firms and households to reduce fossil fuel use and shift the fuel mix toward less-carbon-intensive fuels, such as natural gas.