Rick van der Ploeg, Armon Rezai, 05 January 2018

Trump’s election has brought climate change deniers to the centre of global policymaking. This column uses Pascal’s wager as a model to explore optimal policy given uncertainty over the fundamental causes of global warming. This agnostic approach finds that assigning even a high probability to climate change deniers being correct has insignificant effects on policy. Pricing carbon is shown to be optimal in either case, and robust to whether policymakers want to maximise global welfare, or minimise regret in the worst case.

Rabah Arezki, Maurice Obstfeld, 03 December 2015

Oil prices have dropped by over 60% since June 2014, and natural gas and coal have also seen price declines that look to be similarly long-lived. This column argues that action to restore appropriate price incentives, notably through corrective carbon pricing, is urgently needed to lower the risk of irreversible and potentially devastating effects of climate change. The hope is that the success of COP21 opens the door to future international agreement on carbon prices.

Enrica De Cian, Samuel Carrara, Massimo Tavoni, 22 December 2013

After the Fukushima incident in 2011, many countries decided to shrink their nuclear power programmes. This article presents recent research on the optimal role of nuclear power in reducing carbon emissions. Phasing out nuclear power would be costly, since it is currently the cheapest low-carbon alternative to fossil fuels. However, these costs would be largely offset by the implicit subsidy to R&D in renewables, which suffers from innovation externalities. Still, carbon pricing and explicit R&D subsidies would be a more efficient way of determining the future of nuclear power.

Carlo Carraro, Thomas Longden, Giacomo Marangoni, Massimo Tavoni, 27 November 2013

In recent years, European coal consumption has increased, while natural gas consumption has declined – despite Europe’s commitment to reduce greenhouse-gas emissions. This perverse scenario is partly attributable to EU policies. Subsidies to renewables and energy efficiency targets have the unfortunate side effect of lowering carbon prices, thus partially offsetting their environmental benefits. Raising the EU carbon price would be preferable to employing multiple policy instruments, since it would minimise distortions in energy markets, achieve cost efficiency, and raise fiscal revenues.

Sebastian Rausch, Gilbert Metcalf , John Reilly, 10 June 2011

Many policy proposals to limit greenhouse-gas emissions revolve around efforts to tax carbon emissions. But many studies point out that such energy taxes are regressive. This column models the distributional impacts of carbon pricing on over 15,000 US households, challenging the view that the policy by itself is regressive.

Sebastian Rausch, Gilbert Metcalf , John Reilly , Sergey Paltsev, 31 July 2010

The carbon-pricing implications of cap-and-trade programmes have raised concern that they might be a regressive policy tool. This column documents how allowance allocation schemes similar to those in recently proposed US legislation address distributional concerns and challenges the view that carbon pricing is necessarily regressive.