Consider the following statements 1 Carbon tax is an ad valorem tax based on the amou...........

Environment and Ecology Envirnment and Climate Change

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Consider the following statements.

1. Carbon tax is an ad valorem tax based on the amount of carbon contained in a fuel such as coal.

2. Carbon tax is considered to be more effective in mitigating carbon emission compared to cap and trade mechanism.

Which of the above statements is correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Carbon tax is imposed on the content of carbon and not the value of carbon. Thus, carbon tax is an ad-valorem tax. Carbon tax is more effective at is causes deterrence, rather greater deterrence, than emission caps and trade mechanisms. Hence, neither of the statements are incorrect and answer is D.