THE OPTIMAL TIME PATH OF A CARBON TAX

We analyse the optimal time path of a carbon tax when it is recognised that global warming damages are related to the atmospheric stock of CO2 and that the stock of fossil fuels is exhaustible. We show that some factors cause the carbon tax to rise while others cause it to fall, so no general analytical result emerges. Numerical results suggest that a carbon tax should initially rise and then fall. This contradicts the findings of Sinclair, who argued that a carbon tax should be falling; we show that this result depends on some implausible features of his model.