However, a carbon tax inevitably has its own shortcomings. Firstly,
determining the tax price that leads to the desired internalizing of costs is
difficult because not all of the necessary information is known. To fully
internalize the costs, the tax rate would have to equal the marginal external
costs to ensure that marginal social benefits equal the marginal social costs (Metcalf,
2009). To set such a tax, the government would need to estimate the marginal
cost of abatement as well as the marginal benefit from abatement. This is a
difficult task because the government needs accurate information about marginal
costs of abatement from firms and has to put a price on external costs. It is challenging
to assign an accurate monetary value to harm that is imposed on society and the
environment. The IPCC recently released a report claiming that most tax
estimates undervalue the price of CO2 emissions since quantifying externalities
on the environment is complex (Parry, 1997). Because of these uncertainties,
estimates of the optimal tax rate varies. The
Carbon Tax Center is in favor of a 10 dollars per ton of carbon dioxide and then
raising it every year for at least ten years (Carbon Tax Rate). Yet,
there remains debate and, therefore, no consensus regarding what an optimal tax
rate would be at this time in the United States. 


I'm Garrett!

Would you like to get a custom essay? How about receiving a customized one?

Check it out