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Bjorn Larsen and Anwar Shah

(costs and benefits of a $10/ton carbon tax for selected countries, 1987) Pakistan Indonesia India United Stales Japan Fossil fuel consumption (million dollars) 3,345 5,330 17,266 246,502 126,100 Carbon emissions (millions of tons) 13 25 148 1,246 23 (tons per capita) 0.12 0.15 0.18 5.0 1.9 Price of carbon (per ton in dollars) 253 200 117 198 538 Energy taxes (dollars/ton of carbon) 65 0 11 27 105 $10/ton carbon tax revenues

Cristian Alonso and Mr. Joey Kilpatrick
While a carbon tax is widely acknowledged as an efficient policy to mitigate climate change, adoption has lagged. Part of the challenge resides in the distributional implications of a carbon tax and a belief that it tends to be regressive. Even when not regressive, poor households could be hurt by a carbon tax, particularly in countries that rely heavily on carbon-intensive energy sources. Using household surveys, we study how a carbon tax may affect households in the Asia Pacific region, the main source of CO2 emissions. We document a wide range of country-specific policies that could be implemented to compensate households, reduce inequality, and build support for adoption.
Roberton C. Williams III

Key Messages for Policymakers A carbon tax (taken by itself) will likely impose a small but significant long-term drag on the economy. Using the carbon tax revenue in ways that promote long-run economic growth will offset most of that negative effect (or perhaps even lead to a net economic gain). Potential pro-growth uses of carbon tax revenue include cuts in the rates of other taxes, reductions in the budget deficit, and forms of government spending that can boost long-term economic growth (e.g., research, education, and infrastructure). The

Ian W.H. Parry

Key Messages for Policymakers Market-based instruments like carbon taxes are potentially the most effective policies for reducing energy-related CO 2 emissions. They do this by cutting the demand for fossil fuels and making it more attractive to use zero-carbon fuels like renewables. Ideally, taxes should be applied where fossil fuels enter the economy with rates levied in proportion to carbon content and refunds for any downstream carbon sequestration. To keep down overall policy costs, carbon tax revenues should be used to alleviate