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Second-best Climate Policy

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  • Hoel, Michael

    ()
    (Dept. of Economics, University of Oslo)

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    Abstract

    Countries with an active climate policy often use several other policy instruments in addition to a price on carbon emissions, such as subsidies to renewable energy. An obvious reason for subsidizing alternatives to carbon energy is that the price of carbon emissions is "too low". The paper derives implications for a second-best climate policy if for some reason the price of carbon emissions is lower than the Pigovian level, and also discusses reasons policy makers might have for setting the tax rate at an ine¢ ciently low level. Even if the current tax rate is optimally set, governments cannot commit to future tax rates. In some cases this inabilty to commit may justify subsidies to investments in renewable energy.

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    File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2012/Memo-04-2012.pdf
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    Bibliographic Info

    Paper provided by Oslo University, Department of Economics in its series Memorandum with number 04/2012.

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    Length: 29 pages
    Date of creation: 26 Jan 2012
    Date of revision:
    Handle: RePEc:hhs:osloec:2012_004

    Contact details of provider:
    Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
    Phone: 22 85 51 27
    Fax: 22 85 50 35
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    Web page: http://www.oekonomi.uio.no/indexe.html
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    Related research

    Keywords: carbon tax; subsidies; commitment;

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    References

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    1. Alistair Ulph & David Ulph, 2011. "Optimal Climate Change Policies When Governments Cannot Commit," Discussion Paper Series, Department of Economics, Department of Economics, University of St. Andrews 201104, Department of Economics, University of St. Andrews.
    2. Fischer, Carolyn & Newell, Richard, 2004. "Environmental and Technology Policies for Climate Mitigation," Discussion Papers, Resources For the Future dp-04-05, Resources For the Future.
    3. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
    4. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum, Oslo University, Department of Economics 08/2011, Oslo University, Department of Economics.
    5. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
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    Cited by:
    1. Oskar Lecuyer & Philippe Quirion, 2012. "Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions?," Post-Print hal-00801927, HAL.
    2. repec:hal:wpaper:hal-00866440 is not listed on IDEAS

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