Can a Carbon Tax Be Effective without a Grand Coalition?

Abstract

This paper analyzes an interaction between a carbon-tax collecting and investing coalition of rich countries, abstaining rich countries and poor countries. The non-coalition countries may suffer from loss of reputation and guilt and may overstate the emission-moderating effect of the carbon tax. A s long as these three types of countries react to their counterparts’ emissions, taxing carbon-dioxide emissions unilaterally does not necessarily reduce the global emissions. Nor does it necessarily moderate the emissions of the coalition.