Scaling up Climate Mitigation Policy in Germany

Simon Black, Ruo Chen, Aiko Mineshima, Victor Mylonas, Ian Parry and Dinar Prihardini

No 2021/241, IMF Working Papers from International Monetary Fund

Abstract: Germany has set national greenhouse emissions targets of a 65 percent reduction below 1990 levels by 2030 and net zero emissions by 2045, along with various sectoral emissions goals. To achieve these targets, the government has introduced multi-pronged policy measures, including a national emissions trading system (ETS), which complements the ETS at the EU level. This paper shows the substantial variation in the price responsiveness of emissions across sectors and thus prices implied by sectoral targets. It proposes the following measures to help Germany meet emissions targets with greater certainty and cost effectiveness: (i) further strengthening carbon pricing, for example through automatically rising price floors for the national ETS after 2026; (ii) harmonizing carbon pricing to reduce cross-sector differences in marginal abatement costs; and (iii) introducing feebates (revenue neutral taxsubsidy schemes) to reinforce incentives at the sectoral level. The paper also studies the distributional impact of higher carbon pricing and suggests that reducing social security contributions can mitigate the regressive direct impact of higher carbon pricing on lowerincome households. Concerns with carbon leakages and firms’ competitiveness are best addressed through agreeing on an international carbon price floor.

Keywords: Climate mitigation; emissions trading system; emissions surcharge; price floor; feebate; renewables; electric vehicles; forest carbon storage.; carbon mitigation policy; policy option; policy measure; Germany meet emissions target; climate mitigation; Greenhouse gas emissions; Climate change; Carbon tax; Global (search for similar items in EconPapers)
Pages: 36
Date: 2021-09-27
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (9)

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