Time-Consistent Carbon Pricing
Olga Chiappinelli and
Karsten Neuhoff ()
No 1710, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
In this paper we show that carbon pricing is subject to time-inconsistency and we investigate solutions to improve on the problem and restore the incentive for the private sector to invest in low-carbon innovation. We show that a superior price- investment equilibrium can be sustained in the long-term, if the policy-maker is enough forward looking and allowed to build reputation. In the short-term, time- inconsistency can be alleviated by complementing carbon pricing with project-based carbon price guarantees.
Keywords: Carbon pricing; Time-inconsistency; Low-carbon innovation; Environmental regulation; Repeated games; Carbon contracts (search for similar items in EconPapers)
JEL-codes: C73 L51 O31 Q58 (search for similar items in EconPapers)
Pages: 18 p.
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1710
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