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Making Carbon Pricing Work

David Klenert, Linus Mattauch, Emmanuel Combet, Ottmar Edenhofer (), Cameron Hepburn (), Ryan Rafaty and Nicholas Stern

MPRA Paper from University Library of Munich, Germany

Abstract: Carbon-pricing initiatives are spreading at an unprecedented rate, but a considerable gap remains between actual prices and those required to achieve ambitious climate change mitigation. This perspective shows that much of this gap could be closed by enhancing the public’s acceptance of carbon pricing through the effective use of the substantial revenues raised. We synthesize findings regarding the use of carbon revenues both from recent behavioral and political studies as well as from economic analyses of equity and efficiency. We then compare real-world carbon pricing regimes with insights derived from theory. We find that uniform lump-sum recycling of carbon revenues to citizens is favored among behavioral and political studies that emphasize the importance of distributional fairness, revenue salience, political trust, and policy stability amid partisan changes in government. It is also successfully employed in several real-world recycling schemes, although alternative uses of revenues such as green spending may be appropriate in different national contexts.

Keywords: carbon pricing; carbon tax; revenue recycling; uniform lump-sum transfers; green spending; behavioral economics; political science; inequality; equity (search for similar items in EconPapers)
JEL-codes: D3 D6 D72 H2 H3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2017-08-23
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