Can Carbon Taxes be Good for China and the United States?

Can Carbon Taxes be Good for China and the United States?

Written by Antung Anthony Liu, a Fellow at Resources for the Future in Washington, DC and currently a Visiting Assistant Professor at Cheung Kong Graduate School of Business in Beijing, this paper offers an unconventional view on how the imposition of a carbon tax can benefit the broader economy.

According to Liu, whose research focuses on climate change policy and the development process in China, the typical argument that carbon taxes will hurt the economy goes something like this: controlling carbon will raise the price of energy. Increases in energy prices will hurt the energy sector, costing the country jobs and raising prices throughout the economy. Energy price hikes will hurt businesses and consumers alike. In China, some deem that the economic cost will in fact be higher than the cost in the United States, since China relies more on heavy industry and has a much more carbon-intensive energy mix. Indeed, for decades, the academic literature has supported the popular consensus that carbon taxes will be bad for economic welfare, even when the revenue from these taxes is recycled back into the economy through concomitant tax cuts in other areas.

Source: Paulson Institute

Date: June 2015

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