One way that China may meaningfully control its emissions is through the recent idea of a national carbon permit trading system, building on its carbon permit pilot programs. In China’s case, the internal debate about promulgating these actions centers on the implicit question of whether the cost to the economy of pricing carbon is worth the benefit of mitigating the impacts of climate change. Underlying the debates regarding the regulation of carbon through taxes, permits, or regulations is premised on a widespread assumption that controlling carbon will be bad for economic growth. The key finding in this report, however, is that carbon taxes, provided that the revenue is recycled to cut taxes in other areas, can be good for economic welfare and boost economic growth. The basic reason for this potentially provocative result is that carbon taxes are more efficient than other forms of taxation and can offset inefficiencies in the existing tax structure.
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