Addressing climate change through price and non-price interventions
European Economic Review, 2019, vol. 119, issue C, 594-612
Recognizing the importance of the second-best nature of economies, the Stern–Stiglitz report on carbon pricing departed from the recommendation of a single carbon price for all uses at all places and times. This paper provides some of the analytics behind these recommendations. First, I analyze the circumstances in which distributional concerns make desirable a tax or regulation inducing significant reductions in carbon usage in a carbon-intensive sector for which consumers are disproportionately rich. Such policies allow lower carbon prices elsewhere without exceeding carbon emission targets. The cost of the resulting production inefficiency may, under the identified circumstances, be less than the distributional benefits. The paper considers the circumstances in which such differential policies may be best implemented through regulation vs. differential pricing, as well as differential effects on political economy and norm setting. Second, I consider the effect of carbon price trajectories on induced innovation, providing general conditions under which the optimal carbon path should, at least eventually, be falling over time. Finally, I revisit the price-versus-quantity debate and highlight important aspects of the dynamic nature of the problem.
Keywords: Climate change; Carbon pricing; Instrument choice; Tax incidence; Innovation (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Addressing Climate Change through Price and Non-Price Interventions (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:119:y:2019:i:c:p:594-612
Access Statistics for this article
European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer
More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().