Global warming is related to the concentration of greenhouse gases in the atmosphere. Once in the atmosphere, gases remain there for long periods of time (centuries). Greenhouse gases include carbon dioxide and methane.
a. Assume the effect on global warming of a given amount of carbon dioxide is four times that of methane. What should be the relative fine (tax) on emissions of the two gases?
b. How should the tax vary over time?
c. A carbon tax is a tax related to the amount of carbon dioxide that burning gas, oil or coal adds to the atmosphere. With a carbon tax, coal is taxed very heavily (relative to the amount of energy put out) and natural gas relatively lightly. A BTU (British thermal unit) tax is a tax related to the amount of energy produced, for instance, by burning gas, oil, or coal. If one is concerned about greenhouse gas warming, why is a carbon tax preferable to a BTU tax?