Pricing Carbon in a Multi-Sector Economy with Social Discounting

Oliver Kalsbach and Sebastian Rausch
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Oliver Kalsbach: CER–ETH – Center of Economic Research at ETH Zurich, Switzerland

No 21/360, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: Economists tend to view a uniform emissions price as the most cost-effective approach to reducing greenhouse gas emissions. This paper offers a different view, focusing on economies where society values the well-being of future generations more than private actors. Employing analytical and numerical general equilibrium models, we show that a uniform carbon price is efficient only under restrictive assumptions about technology homogeneity and intertemporal decision-making. Non-uniform pricing spurs capital accumulation and benefits future generations. Depending on sectoral heterogeneity in the substitutability between capital and energy inputs, we find that optimal carbon prices differ widely across sectors and yield substantial welfare gains relative to uniform pricing.

Keywords: Sectoral Carbon Pricing; Differentiated Carbon Taxes; Climate Policy; Social Discounting (search for similar items in EconPapers)
JEL-codes: C61 H23 Q43 Q54 Q58 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021-08
New Economics Papers: this item is included in nep-dge, nep-ene, nep-env and nep-isf
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Pricing carbon in a multi-sector economy with social discounting (2024)
Working Paper: Pricing carbon in a multi-sector economy with social discounting (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eth:wpswif:21-360

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