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The Carbon-Added Tax: An Idea Whose Time Should Never Come

Charles McLure


A “carbon-added tax” (CAT) patterned after the credit-method value-added tax is inadvisable. CAT would be calculated by subtracting (allowing credit for) tax on the carbon content on imports, shown on invoices, from the carbon content of sales. Since the carbon content of products is unobservable, CAT on sales would be based on carbon foot printing. An economy-wide CAT that extended through the retail level would impose enormous costs of compliance and administration and thus not be cost-effective. The same ad hoc methods would be required to calculate border tax adjustments (BTAs) on imports as for other carbon taxes. It would be better to tax carbon upstream and limit BTAs to a few carbon- and trade-intensive basic products.


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