Global carbon price asymmetry

Robert Ritz

Journal of Environmental Economics and Management, 2022, vol. 114, issue C

Abstract: This paper studies a social planner who chooses countries’ carbon prices so as to maximize global welfare. Product markets are characterized by firm heterogeneity, market power, and international trade. Because of the market-power distortion, the planner’s optimal policy is second-best. The main insight is that optimal carbon prices may be highly asymmetric: zero in some countries and above the social cost of carbon in countries with relatively dirty production. This result obtains even though a uniform global carbon price is always successful at reducing countries’ emissions. Competition policy that mitigates market power may enable stronger climate action.

Keywords: Carbon leakage; Carbon pricing; Imperfect competition; International trade; Second best (search for similar items in EconPapers)
JEL-codes: H23 L11 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:114:y:2022:i:c:s0095069622000560

DOI: 10.1016/j.jeem.2022.102687

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