Taxing Cap-and-Trade Environmental Regulation

摘要

This paper examines the extent to which income taxation interferes with cap-and-trade environmental regulation and reaches two conclusions. First, within a single tax period, imposing an income tax will not undermine the cost-effectiveness of cap-and-trade regulation. Second, taxes may distort cost-effective allocation of permits and abatement through time when the permit market is dominated by permit owners with a tax basis of zero.