Using the Tax System To Address Competition Issues with a Carbon Tax

RFF Working Paper Series from Resources for the Future

Abstract: This paper considers how tax reductions financed by a carbon tax could be designed to mitigate the need for specific relief for firms in select energy-intensive, trade-exposed (EITE) sectors. In particular, I consider impacts on manufacturing sectors at the six-digit North American Industry Classification System level, with a special focus on firms that would be presumptively eligible for competitiveness relief using the criteria in the Waxman–Markey bill (H.R. 2454). The paper has a number of findings. First, determination of eligibility for relief analogous to the free allowance allocation in H.R. 2454 is sensitive to energy intensity. Second, providing compensation to EITE sectors through the corporate income tax—analogous to the output-based allowance allocation in Waxman–Markey—is certainly feasible, but tax appetite within the EITE sectors is insufficient to fully use any credits that attempted to offset more than about one-quarter of their carbon tax liability. Third, certain reforms do better than others at providing disproportionate relief to EITE sectors. Finally, economic theory predicts a substantial cost to diverting carbon tax revenue toward compensation of specific sectors. Theory also suggests that firms should treat policy risk no differently from the way they treat the other risks they face as they do business. But politics may dictate otherwise; if so, the analysis here suggests that certain approaches may work better than others to ensure that relief is appropriately targeted at minimal cost.

Keywords: carbon taxes; taxation; tax code; energy-intensive; trade-exposed industries (search for similar items in EconPapers)
JEL-codes: H23 H25 Q54 Q58 (search for similar items in EconPapers)
Date: 2013-10-07
New Economics Papers: this item is included in nep-ene, nep-env, nep-pbe and nep-res
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.rff.org/RFF/documents/RFF-DP-13-30.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-13-30.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-13-30.pdf)

Related works:
Journal Article: Using the Tax System to Address Competition Issues With a Carbon Tax (2014)
Working Paper: Using the Tax System to Address Competition Issues with a Carbon Tax (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-13-30

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().