Differentiated Carbon Prices and the Economic Cost of Decarbonization

Differentiated Carbon Prices and the Economic Cost of Decarbonization Employing a numerical general equilibrium model with multiple fuels, end-use sectors, heterogeneous households, and transport externalities, this paper examines three motives for differentiated carbon pricing in the context of Swiss climate policy: fiscal interactions with the existing tax code, non- $$\hbox {CO}_2$$ CO 2 related transport externalities, and social equity concerns. Interaction effects with mineral oil taxes reduce carbon taxes on motor fuels and transport externalities increase them. We show that the cost-effective overall carbon tax on motor fuels should be lower than the one on thermal fuels. This is found in spite of the fact that pre-existing taxes on motor fuels are well below our estimate of the transport externality per unit of transport fuel consumption. Differentiating taxes in favor of motor fuels yields only slightly more equitable incidence effects among households, suggesting that equity considerations play a minor role when designing differentiated carbon pricing policies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Environmental and Resource Economics Springer Journals

Differentiated Carbon Prices and the Economic Cost of Decarbonization

, Volume 70 (2) – Mar 24, 2017
34 pages

/lp/springer_journal/differentiated-carbon-prices-and-the-economic-cost-of-decarbonization-LcMW8g7AgN
Publisher
Springer Journals
Subject
Economics; Environmental Economics; Environmental Law/Policy/Ecojustice; Political Economy/Economic Policy; Economics, general; Environmental Management
ISSN
0924-6460
eISSN
1573-1502
D.O.I.
10.1007/s10640-017-0130-y
Publisher site
See Article on Publisher Site

Abstract

Employing a numerical general equilibrium model with multiple fuels, end-use sectors, heterogeneous households, and transport externalities, this paper examines three motives for differentiated carbon pricing in the context of Swiss climate policy: fiscal interactions with the existing tax code, non- $$\hbox {CO}_2$$ CO 2 related transport externalities, and social equity concerns. Interaction effects with mineral oil taxes reduce carbon taxes on motor fuels and transport externalities increase them. We show that the cost-effective overall carbon tax on motor fuels should be lower than the one on thermal fuels. This is found in spite of the fact that pre-existing taxes on motor fuels are well below our estimate of the transport externality per unit of transport fuel consumption. Differentiating taxes in favor of motor fuels yields only slightly more equitable incidence effects among households, suggesting that equity considerations play a minor role when designing differentiated carbon pricing policies.

Journal

Environmental and Resource EconomicsSpringer Journals

Published: Mar 24, 2017

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