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. 

Sander Hoogendoorn, Arjan Trinks, Johannes Bollen, 13 July 2021

Pricing carbon and placing a tax on industrial emissions could be a centrepiece of national climate policies going forward. This column uses simulations from a global trade model to show that the introduction of a substantial carbon tax for Dutch industry strongly reduces domestic emissions, while production losses remain modest. However, significant carbon leakage of up to around half of the emissions reduction achieved in the Netherlands occurs, mainly to non-European countries such as China and India.

Patrick Bolton, Marcin Kacperczyk, 24 March 2021

A company’s carbon-transition risk – associated with curbing carbon emissions within a relatively short period of time – is proportional to the size and growth rate of the company’s carbon emissions. This column asks whether companies with different carbon emissions have different stock returns. The total level of a company’s CO2 emissions and the year-by-year growth in emissions significantly affect its stock returns in most geographic areas of the world. The increasing cost of equity for companies with higher emissions can be a form of carbon pricing by investors seeking compensation for carbon-transition risk.

Torsten Ehlers, Benoit Mojon, Frank Packer, Luiz A. Pereira da Silva, 12 December 2020

Projects financed by green bonds have not always resulted in decreased carbon emissions at the firm level. This column – published on the 5th anniversary of the Paris Agreement – outlines three features of a simple rating system that could both encourage firms to reduce their carbon footprint and provide a useful signal to investors. By focusing on firms’ carbon intensity (emissions relative to revenue), this system would complement existing green bond labels while embracing the features most conducive to decisively lowering carbon emissions.

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.

Gregory Casey, Oded Galor, 23 March 2017

Most policies that target climate change – such as carbon taxes and cap-and-trade programmes – have long-term benefits but short-term economic costs. This column argues that population policies may not be subject to this trade-off. In particular, policies that reduce population growth can have a direct positive effect on income per capita as well as lowering growth of carbon emissions. Such policies could play an important role in the portfolio of actions aimed at mitigating climate change.

Arik Levinson, James O'Brien, 11 March 2015

Rich countries pollute less partly because people in richer countries consume a less pollution-intensive bundle of goods. This column investigates whether this results from consumer preferences or economy-wide changes. Within a country, the environmental Engel curve is concave – meaning that richer households, while polluting more, consume a less pollution-intensive bundle. Over time, this accounts for half of the decrease in rich household pollution, with the remainder being due to price changes and environmental regulations.

Matthew Kahn, Siqi Zheng, 19 January 2010

China’s economic growth has profound environmental implications. This column estimates the household carbon emissions of China’s major cities. Even in China’s most polluting city, per household emissions are just one-fifth of those in San Diego, the greenest city in the US.

Raymond Riezman, John Whalley, Yuezhou Cai, 09 April 2009

This column explains how damage from global temperature increases needs to be large before countries reduce carbon emissions. It shows, using simulations, that larger countries should be more willing to participate in cooperative arrangements and countries adopting a longer-term view will be more inclined to reduce carbon emissions. It also argues that international trade is largely a positive force in reducing carbon emissions.

John Whalley, Yan Dong, 25 November 2008

Trade and environmental regimes may need to be more closely linked in a post-Kyoto world. This column discusses trade policy initiatives’ potential contribution to global carbon emissions reduction and the potential impacts of proposals for carbon-reduction-motivated geographical trade arrangements. It suggests that the need to link environmental and trade policy may render the WTO obsolete.

Hans-Werner Sinn, 31 October 2007

EU leaders don’t determine the pace of climate change. Demand reduction by some consumers only lowers fossil fuel consumption to the degree that resource owners decide to curtail their supply. Ultimately, the volume of fossil fuel burnt globally depends upon the rate of extraction and this is in the hands of oil producers who care about carbon’s intertemporal price path. Policies aimed at lowering carbon demand without concern for the price path of carbon may backfire.

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