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Carbon pricing, carbon sequestration and social discounting

Maria Elisa Belfiori

European Economic Review, 2017, vol. 96, issue C, 1-17

Abstract: This paper studies the optimal taxation of carbon emissions in a dynastic economy. When the welfare function places direct Pareto weights on unborn generations, the social discount rate is lower than the discount rate of the current generation. I show that this welfare criterion has important consequences for the structure of the optimal regulatory system. In particular, I show that: (i) the optimal carbon tax does not in general equal the social cost of carbon; (ii) a subsidy on oil reserves is sometimes optimal; and (iii) carbon trading programs should limit the award of carbon offset allowances

Keywords: Climate; Discount rates; Intergenerational equity; Optimal taxation; Carbon trading (search for similar items in EconPapers)
JEL-codes: E6 H21 H23 Q58 (search for similar items in EconPapers)
Date: 2017
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