Environmental Policy in Good and Bad Times: The Countercyclical Effects of Carbon Taxes and Cap-and-Trade

Goran Dominioni and Michael Faure

Journal of Environmental Law, 2022, vol. 34, issue 2, 269-286

Abstract: ‘Green recovery’ is one of the key themes of the stimulus packages implemented around the world in response to the Covid-19-related economic downturn. Recent research points to the potential role of regulation that becomes less stringent during recessions (ie countercyclical regulation) as an instrument to stimulate a quicker recovery. When this argument is put in the context of a green recovery, two key questions arise: should we implement countercyclical environmental regulation? If yes, what environmental instruments are better suited to stimulate the economy in periods of economic downturn? This article addresses these questions by discussing the risks of countercyclical environmental regulation and comparing the countercyclical effects of two critical environmental instruments: carbon taxes and cap-and-trade. The article argues that policymakers should be cautious in implementing countercyclical environmental regulation because the benefits of this practice are uncertain and it entails various risks. The article also challenges the belief common among academics and policymakers that cap-and-trade is inherently more countercyclical than carbon taxes by showing that whether this is true depends on the design of these instruments and other contingent factors.

Keywords: Carbon tax versus cap-and-trade; Countercyclical environmental regulation; Law & macroeconomics; Linking cap-and-trade (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1093/jel/eqac003 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:envlaw:v:34:y:2022:i:2:p:269-286.

Access Statistics for this article

Journal of Environmental Law is currently edited by Sanja Bogojević

More articles in Journal of Environmental Law from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().