Setting Targets and the Choice of Policy Instruments for Limiting CO2 Emissions1

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Abstract
Increasing concern in scientific and policy making circles about the possibility of global warming induced by the accumulation of CO2 and other GHGs in the atmosphere has advanced for consideration of policies to limit emissions of these GHGs. This paper gives an overview of policy instruments that might be used to control CO2 emissions, including command-and-control approach, energy taxes, carbon taxes, and tradeable carbon permits, with special attention paid to the economic instruments. It highlights the differences between energy taxes and carbon taxes in terms of target achievement. It presents some main findings arising from those studies on carbon taxes, with the emphasis placed on some aspects of domestic carbon tax design and incidence. The allocations of emission permits (or reimbursement of carbon tax revenues) are also discussed. Moreover, a comparison of carbon taxes with tradeable carbon permits is briefly made. This paper ends with some conclusions.