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Carbon pricing, carbon sequestration and social discounting

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  • Belfiori, Maria Elisa

Abstract

This paper studies the optimal taxation of carbon emissions in a dynastic economy. When the welfare function places direct Pareto weights on unborn generations, the social discount rate is lower than the discount rate of the current generation. I show that this welfare criterion has important consequences for the structure of the optimal regulatory system. In particular, I show that: (i) the optimal carbon tax does not in general equal the social cost of carbon; (ii) a subsidy on oil reserves is sometimes optimal; and (iii) carbon trading programs should limit the award of carbon offset allowances

Suggested Citation

  • Belfiori, Maria Elisa, 2017. "Carbon pricing, carbon sequestration and social discounting," European Economic Review, Elsevier, vol. 96(C), pages 1-17.
    • Handle: RePEc:eee:eecrev:v:96:y:2017:i:c:p:1-17
    DOI: 10.1016/j.euroecorev.2017.03.015
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    Cited by:

    1. Belfiori, Maria Elisa, 2018. "Climate change and intergenerational equity: Revisiting the uniform taxation principle on carbon energy inputs," Energy Policy, Elsevier, vol. 121(C), pages 292-299.
    2. Frederick Ploeg & Armon Rezai, 2019. "Simple Rules for Climate Policy and Integrated Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 77-108, January.
    3. van der Ploeg, Frederick & Rezai, Armon, 2019. "The agnostic's response to climate deniers: Price carbon!," European Economic Review, Elsevier, vol. 111(C), pages 70-84.
    4. Mathias Mier & Jacqueline Adelowo, 2022. "Taxation of Carbon Emissions with Social and Private Discount Rates," ifo Working Paper Series 374, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Barrage, Lint, 2018. "Be careful what you calibrate for: Social discounting in general equilibrium," Journal of Public Economics, Elsevier, vol. 160(C), pages 33-49.
    6. van der Ploeg, Frederick & Rezai, Armon, 2021. "Optimal carbon pricing in general equilibrium: Temperature caps and stranded assets in an extended annual DSGE model," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    7. Arnaud Goussebaïle, 2022. "Democratic Climate Policies with Overlapping Generations," CER-ETH Economics working paper series 22/374, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Konc, Théo & Savin, Ivan & van den Bergh, Jeroen C.J.M., 2021. "The social multiplier of environmental policy: Application to carbon taxation," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    9. Michael O. Hoel & Sverre A. C. Kittelsen & Snorre Kverndokk, 2019. "Correcting the Climate Externality: Pareto Improvements Across Generations and Regions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 449-472, September.
    10. Michel Moreaux & Jean-Pierre Amigues & Gerard van der Meijden & Cees Withagen, "undated". "Carbon Capture: Storage vs. Utilization," Tinbergen Institute Discussion Papers 22-041/VIII, Tinbergen Institute.
    11. Richard Jaimes, 2021. "Does idiosyncratic risk matter for climate policy?," Vniversitas Económica 19276, Universidad Javeriana - Bogotá.
    12. van der Ploeg, Frederick & Rezai, Armon, 2017. "The Agnostic’s Response to Climate Deniers: Price Carbon!," CEPR Discussion Papers 12468, C.E.P.R. Discussion Papers.
    13. Jacqueline Adelowo & Mathias Mier & Christoph Weissbart, 2021. "Taxation of Carbon Emissions and Air Pollution in Intertemporal Optimization Frameworks with Social and Private Discount Rates," ifo Working Paper Series 360, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    More about this item

    Keywords

    Climate; Discount rates; Intergenerational equity; Optimal taxation; Carbon trading;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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