Emission Mitigation and Comparative Carbon Taxation

Carbon taxes theoretically dominate the emission standard because of the shortcomings of tax revenue when imposing standards. To study the optimal regulation mode in society, this paper compares four potential regulations for carbon emission mitigation: an emission tax (an emission approach tax), a carbon tax (a fuel approach tax), an emission standard and an equivalent emission standard (EES) tax. The results show that policy effects depend on the magnitude of carbon pollution and the abatement cost in the short term. Additionally, the optimal levels of social welfare under emission tax and carbon tax modes are the same. Notably, the EES tax system can not only generate tax revenue but also has a relatively moderate impact on social welfare. If the social damage resulting from carbon emissions is large, the EES tax system will be comparatively more beneficial to society, but the advantage is limited in terms of the relevant abatement cost. In the long term, under certain conditions, excessive firm entry may occur. Therefore, carbon regulation can be a sort of entry deterrence in the market