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Optimal Global Dynamic Carbon Taxation

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Author Info
Anthoff, David (ESRI)

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Abstract

A necessary condition of an efficient global climate change mitigation policy is to equate marginal abatement costs across world regions to ensure use of the cheapest abatement options available. The welfare economic justification for such an approach rests on lump sum transfers between regions to compensate for any unwanted distributional consequences of such a policy. I contrast this efficient solution with a second best situation in which lump sum transfers between regions are impossible. I derive that in a dynamic setting optimal taxes are different in such a case for regions with different per capita consumption. I estimate the optimal tax rates with the integrated assessment model FUND and find that optimal mitigation is less stringent when equity is explicitly considered for widely used parameter choices of a utilitarian social welfare function.

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Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP278.

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Length: 31 pages
Date of creation: Feb 2009
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Handle: RePEc:esr:wpaper:wp278

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Keywords: Climate change;

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References listed on IDEAS
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  1. Kristen A. Sheeran, 2006. "Who Should Abate Carbon Emissions? A Note," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 35(2), pages 89-98, October. [Downloadable!] (restricted)
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  4. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April. [Downloadable!] (restricted)
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  5. Tol, Richard S. J., 1996. "The damage costs of climate change towards a dynamic representation," Ecological Economics, Elsevier, vol. 19(1), pages 67-90, October. [Downloadable!] (restricted)
  6. P. Michael Link & Richard S.J. Tol, 2004. "Possible Economic Impacts of a Shutdown of the Thermohaline Circulation: an Application of FUND," Working Papers FNU-42, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2004. [Downloadable!]
  7. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change. Part 1: Benchmark Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(1), pages 47-73, January. [Downloadable!] (restricted)
  8. Böhringer, Christoph & Helm, Carsten, 2008. "On the fair division of greenhouse gas abatement cost," Resource and Energy Economics, Elsevier, vol. 30(2), pages 260-276, May. [Downloadable!] (restricted)
  9. Richard S.J. Tol, 2006. "Multi-Gas Emission Reduction for Climate Change Policy: An Application of Fund," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 235-250.
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  10. Shiell, Leslie, 2003. "Equity and efficiency in international markets for pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 38-51, July. [Downloadable!] (restricted)
  11. Tol, Richard S. J., 2001. "Equitable cost-benefit analysis of climate change policies," Ecological Economics, Elsevier, vol. 36(1), pages 71-85, January. [Downloadable!] (restricted)
  12. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December. [Downloadable!] (restricted)
  13. Shiell, Leslie, 2003. "Descriptive, prescriptive and second-best approaches to the control of global greenhouse gas emissions," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1431-1452, August. [Downloadable!] (restricted)
  14. Anthoff, David & Hepburn, Cameron & Tol, Richard S.J., 2009. "Equity weighting and the marginal damage costs of climate change," Ecological Economics, Elsevier, vol. 68(3), pages 836-849, January. [Downloadable!] (restricted)
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  15. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July. [Downloadable!] (restricted)
  16. J.K. Horowitz, 2002. "Preferences in the Future," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(3), pages 241-258, March. [Downloadable!] (restricted)
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  1. David Anthoff & Richard Tol, 2009. "The Impact of Climate Change on the Balanced Growth Equivalent: An Application of FUND," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 351-367, July. [Downloadable!] (restricted)
    Other versions:
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