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A Welfare Analysis of Policies Impacting Climate Change

Author

Listed:
  • Robert W. Hahn
  • Nathaniel Hendren
  • Robert D. Metcalfe
  • Ben Sprung-Keyser

Abstract

We study the welfare impacts of 96 climate-related tax and spending policies. We extend and apply the marginal value of public funds (MVPF) framework, most notably providing a new method for incorporating learning-by-doing spillovers. We find subsidies for the production of clean energy (such as wind production tax credits) have higher MVPFs than all other subsidies in our sample, including EV subsidies. Conservation nudges have large MVPFs when targeting regions with dirty grids. Fuel taxes and cap-and-trade policies are highly efficient means of raising revenue. We also construct traditional cost-per-ton estimates and compare and contrast the lessons they provide.

Suggested Citation

  • Robert W. Hahn & Nathaniel Hendren & Robert D. Metcalfe & Ben Sprung-Keyser, 2026. "A Welfare Analysis of Policies Impacting Climate Change," American Economic Review, American Economic Association, vol. 116(7), pages 2368-2421, July.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:7:p:2368-2421
    DOI: 10.1257/aer.20250166
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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