In order to create a carbon tax, we must be able to determine the social cost of carbon. There are at least two methods of implementing this social cost, including a Pigouvian corrective tax and a system of tradable permits. In this chapter, Professor Sachs explains how the market-based tradable permit system works and compares it to the tax system. He discusses drawbacks and advantages to each system, and when it would be advisable to implement each system. Carbon is often considered a market failure, leading to the proposal to put a price on it, but it will not solve the zero-net carbon energy issue, because it raises issues such as whether or not we should use nuclear power, for example.
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