This paper addresses optimal taxation, when the relationship between consumption and environmental damage is uncertain and treated as a random variable by policy makers. The main purpose is to analyze how additional uncertainty about this relationship affects the optimal unit tax on the...

Climate change must deal with two market failures: global warming and learning by doing in renewable use. The first-best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax. Given that global carbon taxes remain elusive, policy...