Time-Consistent Carbon Pricing: The Role of Carbon Contracts for Differences
Olga Chiappinelli and
Karsten Neuhoff ()
No 1859, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
Carbon pricing decisions by governments are prone to time-inconsistency, which causes the private sector to underinvest in emission-reducing technologies. We show that incentives for decarbonization can be improved if complementing carbon pricing with carbon contracts for differences, where the government commits to pay a ﬁxed carbon price level to the investors. We derive conditions under which the government is willing to “tie its hands” with the contracts.
Keywords: Carbon pricing; time-inconsistency; green technology; climate policy; carbon contracts (search for similar items in EconPapers)
JEL-codes: C73 L51 O31 Q58 (search for similar items in EconPapers)
Pages: 35 p.
New Economics Papers: this item is included in nep-agr, nep-cta, nep-ene, nep-env and nep-gen
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1859
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