Kevin Macdonald, Harry Patrinos, 22 December 2021

Carbon pricing is increasingly used by governments to reduce emissions. Using data from 21 European countries, this column considers how education quality interacts with the effect of carbon pricing on emissions, output, and wage inequality. Cognitive skills are associated with lower emissions per output and faster reductions in emissions per output across time. The association is primarily with the cognitive skills of professional and managerial occupations, which would be most involved in innovation and adoption.

Rick van der Ploeg, Armon Rezai, Miguel Tovar, 02 November 2021

Carbon pricing disproportionately hurts poorer households, but cash disbursals from the revenue it raises can compensate these households and lower income inequality. This column evaluates the effects of carbon taxes by employing utility-based measures of whether a household is better off. The transparency of such a policy increases political support if a substantial majority of the population benefit from the carbon tax plus cash disbursal. However, endogenous behaviour blunts the effectiveness of such transfers; for Germany, it diminishes political approval from 60% to 30%. Using revenue for lowering income taxes as well for dividends increases popular support back to above 50%.

Maria Chiara Paoli, Rick van der Ploeg, 04 October 2021

Despite climate justice advocates continuing to highlight climate inequities along racial, gender and class dimensions and policymakers’ vague statements in support of a ‘just transition’, there are few concrete plans. This column uses microsimulations of household behaviour from UK data to investigate the efficiency and equity impacts of different ways of recycling carbon tax revenue, focusing on both horizontal and vertical equity dimensions, and their implications for political feasibility. The authors find that rebating carbon tax revenues through social security payments renders the policy progressive and benefits the highest share of households in their sample.

Haitao Cheng, Jota Ishikawa, 16 September 2021

As a result of global warming, carbon taxes and emissions trading policies are in the spotlight. However, lack of cross-country coordination can cause carbon leakage and increases in emissions. This column analyses the effectiveness of carbon taxes and border tax adjustment policies in reducing emissions and shaping firms’ decisions on abatement investment and firm location. It shows that a higher carbon tax can sometimes lead to higher global emissions and discourage investment in clean technology. Likewise, border tax adjustments should be designed carefully to ensure lower emissions and compatibility with WTO rules. 

Ghassane Benmir, Ivan Jaccard, Gauthier Vermandel, 20 August 2021

Climate change is one of the most pressing issues of our time. The challenge for policymakers is that climate policies could have a negative impact on the economy in the short term. This column discusses how this trade-off between fighting climate change and ensuring a stable business cycle affects the design of environmental policies. The authors argue in favour of a time-varying carbon tax that is increased during booms and decreased during recessions.

Daron Acemoğlu, Ufuk Akcigit, Douglas Hanley, William Kerr, 05 July 2017

Substantial headway has been made in the transition to clean technology, but recent political developments threaten this progress. This column examines the transition process using a microeconomic model of competition in production and innovation between clean and dirty technologies. The results suggest that production taxes can deal with dirty emission externalities, while research subsidies are sufficient to redirect innovation towards clean technologies. However, delaying intervention will drastically slow down the overall transition.

Harun Onder, 12 September 2012

As multilateral attempts for climate-change mitigation stall, the two-way relationship between trade and climate change is likely to come under further scrutiny. This column explains how liberalised trade has several climate-related consequences. It argues that trade policy could enforce mitigation policies but that multilateral conventions are crucial in preventing undesired protectionist consequences.

Gilbert Metcalf, 27 June 2009

Nearly all economists agree that the most efficient way to address environmental problems is to raise the cost of the pollution-generating activity, but US policies subsidise clean-energy alternatives instead. This column criticizes that approach – subsidies lower the cost of energy, play favourites with technologies, are often inframarginal, and frequently interact in unexpected ways with other policies.


CEPR Policy Research