Global carbon price asymmetry

Robert Ritz

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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 and more balanced 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: 2021-05-17
New Economics Papers: this item is included in nep-com, nep-ene, nep-env, nep-int and nep-reg
Note: rar36
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Journal Article: Global carbon price asymmetry (2022)
Working Paper: Global carbon price asymmetry (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2145

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