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%.

Beatrice Weder di Mauro, 12 October 2021

Governments will need to impose more carbon taxes, but central banks need to deliver price stability. So what is the effect of these taxes on inflation and economic activity? New research examines three decades of data from Canada and Europe.
 

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Christian Gollier, Maureen Cropper, 27 September 2021

The Fourth CEPR/EAERE Webinar on Climate Policy takes place on 30 September 2021. The subject is carbon pricing, and to preview the session Maureen Cropper of the University of Maryland and Christian Gollier Toulouse School of Economics and RPN director talk to Tim Phillips about the issues for economists – and how COP26 can help. Register for the webinar: cepr.online/carbonpricing.

Bruno Baranek, Federico Boffa, Jakub Kastl, 23 August 2021

Carbon pricing is generally considered by economists as a superior alternative for emissions mitigation to command-and control regulation. This column uses data from the Italian electricity market to challenge this view in the context of the electricity sector, showing that carbon pricing schemes may not work efficiently when the major firms in the market are government controlled. As the vast majority of large electricity generators in the world are government-controlled and the electricity sector accounts for more than 40% of global carbon emissions from fuel combustion, the findings have important policy implications. Properly implemented command and control approaches might be more efficient, especially since reliable estimates of the production functions of electric generators are readily available.

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.

Derek Lemoine, 28 July 2021

In order to limit global climate change, the world may eventually need to remove more carbon from the atmosphere than it puts in ('negative emissions'). Economists almost universally recommend pricing carbon emissions via a tax or cap, but this policy cannot achieve negative emissions unless paired with potentially massive government spending. This column argues that an alternate type of policy, called 'carbon shares', can limit emissions as efficiently as carbon taxes or caps while also properly incentivising negative emissions.

Christoph Schmidt, Marcel Fratzscher, Nicola Fuchs-Schündeln, Clemens Fuest, Christian Gollier, Philippe Martin, Isabelle Mejean, Xavier Ragot, Katheline Schubert, Beatrice Weder di Mauro, 06 May 2021

The EU has announced reaching carbon neutrality by 2050 as the key target of its Green Deal strategy. The best coordination signal in this endeavour would be a uniform and encompassing price on carbon. To ascertain that all goods consumed in the EU face the same carbon price, it would be sensible to credibly prepare the implementation of border carbon adjustments  applied to imported goods. This column argues, however, that the EU should refrain from exempting exports from carbon pricing, and should consider a border carbon adjustment mechanism only after having established a credible uniform carbon-pricing mechanism within its jurisdiction. This could provide incentives to other countries to join a far-reaching international alliance for carbon pricing.

Robert Schlögl, Christoph Schmidt, 23 November 2020

With its increasing ambition, the conceptual deficiencies of the European climate policy are becoming even more transparent – especially its neglect of the systemic nature of the energy system. This column highlights three key elements of a more promising approach to European climate policy: (i) establishing a uniform carbon price as its central policy element, (ii) ending the confusion of objectives and instruments, and (iii) dropping its naiveté about the repercussions of its own actions on global climate protection. Addressing these issues will be crucial to making the European Green Deal work effectively.

Jennifer Castle, David Hendry, 04 June 2020

The UK’s 2008 Climate Change Act has led to a 34% fall in CO2 emissions by 2019, while real GDP per capita had risen by more than 10% following the crash into the ‘Great Recession’. Can the UK achieve its recent net-zero emissions target by 2050 while still growing? This column describes some speculative routes to such a decarbonised future.

Johannes Bollen, 13 March 2020

While the energy transition to decarbonise the EU’s economy fully by 2050 will be felt economically in all member states, the costs of decarbonising can be substantially lowered through maximising the production of hydrogen, which in turn can be used to generate electricity. This column uses a global climate-energy economic model to compare three energy production scenarios. It finds that wind energy plus gasification of biomass, natural gas, or coal with carbon capture storage can reduce the cost of achieving Europe’s 95% emissions-reduction goal by 40%. 

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.

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