Distribution Matters � Taxes vs. Emissions Trading in Post Kyoto Climate Regimes
AbstractThe policy instruments for emissions reductions will be an integral part of a Post Kyoto Climate Regime. In this paper we compare a harmonized international carbon tax to a cap and trade system with different allocation rules for the emission caps. The caps are based either on the requirement for equal percentage reductions in all countries or the “contraction and convergence” proposal that leads to converging per capita emission rights. The quantitative analysis is based on simulations with the CGE model DART. The harmonized carbon tax tends to favor industrialized countries but is less favorable to developing countries. The welfare effects of a cap and trade system depend crucially on the allocation rule for emission rights. The “contraction and convergence” approach leads to welfare gains for countries like China, India and Subsaharan Africa whereas it imposes welfare losses upon industrialized countries which are larger than those under other cap and trade schemes or a tax scenario. Independent from the allocation rule that is used regions exporting fossil fuels experience strong welfare losses from the reduction in the demand for fossil fuels and the fall in prices that results from the imposition of the international climate policies.
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1380.
Length: 26 pages
Date of creation: Sep 2007
Date of revision:
Post Kyoto; emission targets; emission trading; taxes; distribution;
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-06 (All new papers)
- NEP-CMP-2007-10-06 (Computational Economics)
- NEP-CWA-2007-10-06 (Central & Western Asia)
- NEP-ENE-2007-10-06 (Energy Economics)
- NEP-ENV-2007-10-06 (Environmental Economics)
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