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Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects

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  • Gonand, Frédéric

Abstract

A rising share of renewables in the energy mix push es up the average price of energy - and so does a carbon tax. However the former bolsters the accumulation of capital whereas the latter, if fully recycled, does not. Thus, in general equilibrium, the effects on growth and intertemporal welfare of these two environmental po licies differ. The present article assesses and compares these effects. It relies on a computable general equilibrium model with overlapping generations, an energy module and a pub lic finance module. The main result is that an increasing share of renewables in the energy mix and a fully recycled carbon tax have opposite (though limited) impacts on activity and i ndividuals’ intertemporal welfare in the long run. The recycling of a carbon tax fosters consumption and labour supply, and thus growth and welfare, whereas an increasing share of renewables does not. Results also suggest that a higher share of renewables and a recycled carbon tax trigger intergenerational redistributive effects, with the former being relat ively detrimental for young generations and the latter being pro-youth. The policy implication is that a social planner seeking to modify the structure of the energy mix while achieving some ne utrality as concerns the GDP and triggering some proyouth intergenerational equity, could usefully contemplate the joint implementation of higher quantitative targets for the future development of renewables and a carbon tax fully recycled through lower proportional taxes.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/13361.

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Date of creation: Apr 2014
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Publication status: Published in Les Cahiers de la Chaire Economie du Climat, 2014
Handle: RePEc:dau:papers:123456789/13361

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Keywords: Energy transition; intergenerational redistribution; overlapping generations; carbon tax; general equilibrium;

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