A carbon tax is a promising tool for discouraging the greenhouse gas emissions that cause climate change. In principle, a well-designed tax could reduce the risk of climate change, minimize the cost of emissions reductions, encourage innovation in low-carbon technologies, and raise new public revenue. But designing a real-world carbon tax poses significant challenges. We analyze those challenges from a public finance perspective, emphasizing three tax policy design issues: setting the tax rate, collecting the tax, and using the resulting revenue. The benefits of a carbon tax will depend on how policymakers address those issues.

How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them? by Leonard E. Burman, Christopher Geissler and Eric J. Toder. Published in volume 98, issue 2, pages 79-83 of American Economic Review, May 2008