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The social cost of carbon and inequality: When local redistribution shapes global carbon prices

Ulrike Kornek, David Klenert, Ottmar Edenhofer () and Marc Fleurbaey

Journal of Environmental Economics and Management, 2021, vol. 107, issue C

Abstract: The social cost of carbon is a central metric for optimal carbon prices. Previous literature shows that inequality significantly influences the social cost of carbon, but mostly omits heterogeneity below the national level. We present an optimal taxation model of the social cost of carbon that accounts for inequality between and within countries. We find that climate and distributional policy can generally not be separated. If only one country does not compensate low-income households for disproportionate damages, the social cost of carbon tends to increase globally. Optimal carbon prices remain roughly unchanged if national redistribution leaves inequality between households unaffected by climate change and if the utility of households is approximately logarithmic in consumption.

Keywords: Optimal taxation; Inequality; Climate change; Social cost of carbon; Carbon tax (search for similar items in EconPapers)
JEL-codes: C61 H21 H23 H41 H77 Q54 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:107:y:2021:i:c:s0095069621000334

DOI: 10.1016/j.jeem.2021.102450

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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