Optimal Climate Policy in a Global Economy

Anastasios Karantounias

No 726, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This paper studies the optimal climate policy in a global economy. Emissions impose a dynamic, global, negative externality, raising natural questions about international policy coordination. To understand the issues involved, I first build a simple dynamic multicountry model and study the optimal cooperative climate policy that corrects the global externality. Moreover, I move beyond cooperation and study the optimal climate policy for a large country that faces a passive rest of the world. In this setup, corrective taxation motives are intertwined with interest rate manipulation through capital controls. Incentives for carbon taxation are amplified for net importers and mitigated for net exporters.

JEL-codes: E61 H21 H23 Q43 Q54 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2026-10
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0726

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