IDEAS home Printed from https://ideas.repec.org/a/eee/jeeman/v109y2021ics0095069621000462.html
   My bibliography  Save this article

Make or brake — Rich states in voluntary federal emission pricing

Author

Listed:
  • Roolfs, Christina
  • Gaitan, Beatriz
  • Edenhofer, Ottmar

Abstract

Voluntary participation can improve multilateral environmental governance. We model voluntary participation of states in unanimously approved federal environmental policy. A Pareto-improving federal emission price coexists with state-level emission pricing. Federal revenues are distributed equally per capita (egalitarian), in proportion to states' historical emission levels (sovereignty), or states’ actual payments (juste retour). We find that the existence of Pareto-improving uniform federal prices depends on wealth differences, transfer rules, and on whether or not states anticipate transfers. Sovereignty transfers work in all cases. Differences in wealth can undermine egalitarian transfers. Juste retour transfers render federal policy ineffective if states anticipate them. The richest state prefers the lowest Pareto-optimal federal price (“minimum price”) as it becomes the largest net-donor. Adding different population sizes, the richest and largest (smallest) state prefers the minimum price with sovereignty and juste retour transfers (egalitarian transfers). Therefore, rich states brake and simultaneously make possible passing unanimous federal policy.

Suggested Citation

  • Roolfs, Christina & Gaitan, Beatriz & Edenhofer, Ottmar, 2021. "Make or brake — Rich states in voluntary federal emission pricing," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000462
    DOI: 10.1016/j.jeem.2021.102463
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0095069621000462
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jeem.2021.102463?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
    2. Berlemann Michael & Wesselhöft Jan-Erik, 2017. "Aggregate Capital Stock Estimations for 122 Countries: An Update," Review of Economics, De Gruyter, vol. 68(2), pages 75-92, August.
    3. Kverndokk, Snorre & Rose, Adam, 2008. "Equity and Justice in Global Warming Policy," International Review of Environmental and Resource Economics, now publishers, vol. 2(2), pages 135-176, October.
    4. Silvana Dalmazzone, 2006. "Decentralization and the Environment," Chapters, in: Ehtisham Ahmad & Giorgio Brosio (ed.), Handbook of Fiscal Federalism, chapter 18, Edward Elgar Publishing.
    5. Antoine D'Autume & Katheline Schubert & Cees Withagen, 2016. "Should the Carbon Price Be the Same in All Countries?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(5), pages 709-725, October.
    6. Christoph Böhringer & Nicholas Rivers & Thomas Rutherford & Randall Wigle, 2015. "Sharing the burden for climate change mitigation in the Canadian federation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(4), pages 1350-1380, November.
    7. Barrett, Scott, 2005. "The theory of international environmental agreements," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 28, pages 1457-1516, Elsevier.
    8. repec:hal:pseose:halshs-01300261 is not listed on IDEAS
    9. Böhringer, Christoph & Rivers, Nicholas & Yonezawa, Hidemichi, 2016. "Vertical fiscal externalities and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 51-74.
    10. Johannes Urpelainen, 2009. "Explaining the Schwarzenegger Phenomenon: Local Frontrunners in Climate Policy," Global Environmental Politics, MIT Press, vol. 9(3), pages 82-105, August.
    11. Boadway, Robin & Marchand, Maurice & Vigneault, Marianne, 1998. "The consequences of overlapping tax bases for redistribution and public spending in a federation," Journal of Public Economics, Elsevier, vol. 68(3), pages 453-478, June.
    12. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 137-155, May.
    13. John D. Wilson, 2006. "Tax Competition in a Federal Setting," Chapters, in: Ehtisham Ahmad & Giorgio Brosio (ed.), Handbook of Fiscal Federalism, chapter 13, Edward Elgar Publishing.
    14. Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2013. "International Environmental Agreements, Fiscal Federalism, and Constitutional Design," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 705-718, September.
    15. Lasse Ringius & Asbjørn Torvanger & Arild Underdal, 2002. "Burden Sharing and Fairness Principles in International Climate Policy," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 2(1), pages 1-22, March.
    16. Simon Dietz & Nicholas Stern, 2015. "Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions," Economic Journal, Royal Economic Society, vol. 0(583), pages 574-620, March.
    17. Williams, Roberton C., 2012. "Growing state–federal conflicts in environmental policy: The role of market-based regulation," Journal of Public Economics, Elsevier, vol. 96(11), pages 1092-1099.
    18. David Klenert & Linus Mattauch & Emmanuel Combet & Ottmar Edenhofer & Cameron Hepburn & Ryan Rafaty & Nicholas Stern, 2018. "Making carbon pricing work for citizens," Nature Climate Change, Nature, vol. 8(8), pages 669-677, August.
    19. Kemfert, Claudia & Welsch, Heinz, 2000. "Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 641-660, November.
    20. Elinor Ostrom, 2014. "A Polycentric Approach For Coping With Climate Change," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 97-134, May.
    21. 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.
    22. van der Werf, Edwin, 2008. "Production functions for climate policy modeling: An empirical analysis," Energy Economics, Elsevier, vol. 30(6), pages 2964-2979, November.
    23. Brulhart, Marius & Jametti, Mario, 2006. "Vertical versus horizontal tax externalities: An empirical test," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2027-2062, November.
    24. Stavins, Robert, 1997. "Policy Instruments for Climate Change: How Can National Governments Address a Global Problem?," RFF Working Paper Series dp-97-11, Resources for the Future.
    25. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
    26. Marc Fleurbaey & Peter Hammond, 2004. "Interpersonally comparable utility," Post-Print hal-00247066, HAL.
    27. Lawrence J. Lau & Pan A. Yotopoulos, 1972. "Profit, Supply, and Factor Demand Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(1), pages 11-18.
    28. Bev Dahlby, 1996. "Fiscal externalities and the design of intergovernmental grants," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 397-412, July.
    29. Rose, Adam & Stevens, Brandt, 1993. "The efficiency and equity of marketable permits for CO2 emissions," Resource and Energy Economics, Elsevier, vol. 15(1), pages 117-146, March.
    30. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
    31. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, April.
    32. Dietz, Simon & Stern, Nicholas, 2015. "Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions," LSE Research Online Documents on Economics 58406, London School of Economics and Political Science, LSE Library.
    33. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    34. van der Werf, Edwin, 2007. "Production Functions for Climate Policy Modeling: An Empirical Analysis," Climate Change Modelling and Policy Working Papers 9549, Fondazione Eni Enrico Mattei (FEEM).
    35. Gustav Engström & Johan Gars, 2015. "Optimal Taxation in the Macroeconomics of Climate Change," Annual Review of Resource Economics, Annual Reviews, vol. 7(1), pages 127-150, October.
    36. Pottier, Antonin & Mejean, Aurelie & Godard, Olivier & Hourcade, Jean-Charles, 2017. "A Survey of Global Climate Justice: From Negotiation Stances to Moral Stakes and Back," International Review of Environmental and Resource Economics, now publishers, vol. 11(1), pages 1-53, October.
    37. Jeff Tollefson, 2020. "Why deforestation and extinctions make pandemics more likely," Nature, Nature, vol. 584(7820), pages 175-176, August.
    38. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    39. Wallace Oates, 2005. "Toward A Second-Generation Theory of Fiscal Federalism," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 349-373, August.
    40. Berlemann Michael & Wesselhöft Jan-Erik, 2014. "Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method: A Survey of Previous Implementations and New Empirical Evidence for 103 Countries," Review of Economics, De Gruyter, vol. 65(1), pages 1-34, April.
    41. Rory Gibb & David W. Redding & Kai Qing Chin & Christl A. Donnelly & Tim M. Blackburn & Tim Newbold & Kate E. Jones, 2020. "Zoonotic host diversity increases in human-dominated ecosystems," Nature, Nature, vol. 584(7821), pages 398-402, August.
    42. Kverndokk, Snorre, 2018. "Climate Policies, Distributional Effects and Transfers Between Rich and Poor Countries," International Review of Environmental and Resource Economics, now publishers, vol. 12(2-3), pages 129-176, November.
    43. Adam Rose & Brandt Stevens & Jae Edmonds & Marshall Wise, 1998. "International Equity and Differentiation in Global Warming Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 12(1), pages 25-51, July.
    44. Parry, Ian & Pittel, Karen & Vollebergh, Herman (ed.), 2017. "Energy Tax and Regulatory Policy in Europe: Reform Priorities," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262036398, April.
    45. van der Werf, Edwin, 2007. "Production Functions for Climate Policy Modeling: An Empirical Analysis," Kiel Working Papers 1316, Kiel Institute for the World Economy (IfW Kiel).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Siying Yang & Hua Bai & An Li, 2023. "A futile help: do vertical transfer payments promote haze control?," Economic Change and Restructuring, Springer, vol. 56(5), pages 3411-3436, October.
    2. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2022. "Carbon pricing, border adjustment and climate clubs: An assessment with EMuSe," Discussion Papers 25/2022, Deutsche Bundesbank.
    3. Meya, Jasper N. & Neetzow, Paul, 2021. "Renewable energy policies in federal government systems," Energy Economics, Elsevier, vol. 101(C).
    4. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2023. "Carbon pricing, border adjustment and climate clubs: Options for international cooperation," Journal of International Economics, Elsevier, vol. 144(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    2. William H. Hoyt, 2017. "The assignment and division of the tax base in a system of hierarchical governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(4), pages 678-704, August.
    3. Sotiris Karkalakos & Christos Kotsogiannis, 2007. "A spatial analysis of provincial corporate income tax responses: evidence from Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(3), pages 782-811, August.
    4. Crivelli, Ernesto & Volpe Martincus, Christian, 2007. "Horizontal and Vertical Tax Externalities in a Multicountry World," Bonn Econ Discussion Papers 8/2007, University of Bonn, Bonn Graduate School of Economics (BGSE).
    5. Reingewertz, Yaniv, 2018. "Corporate taxes and vertical tax externalities: Evidence from narrative federal tax shocks," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 84-97.
    6. Willem Sas, 2017. "Can fiscal equalisation mitigate tax competition? Ad valorem and residence-based taxation in a federation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(5), pages 817-853, September.
    7. Robin Boadway & Jean-Francois Tremblay, 2005. "A Theory of Vertical Fiscal Imbalance," Working Papers 2006-04, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
    8. Boadway, Robin & Tremblay, Jean-François, 2010. "Mobility and Fiscal Imbalance," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(4), pages 1023-1053, December.
    9. Bev Dahlby & Ergete Ferede, 2012. "The effects of tax rate changes on tax bases and the marginal cost of public funds for Canadian provincial governments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(6), pages 844-883, December.
    10. Böhringer, Christoph & Rivers, Nicholas & Yonezawa, Hidemichi, 2016. "Vertical fiscal externalities and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 51-74.
    11. Robin Boadway & Jean-François Tremblay, 2006. "A Theory of Fiscal Imbalance," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(1), pages 1-27, March.
    12. Florence TOUYA, 2009. "Tax Interactions with Asymmetric Information and Nonlinear Instruments," Working Papers 9, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Nov 2009.
    13. Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, vol. 96(3), pages 295-305.
    14. Robin Boadway & Katherine Cuff, 2017. "The impressive contribution of Canadian economists to fiscal federalism theory and policy," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1348-1380, December.
    15. Fredriksson, Per G. & Mamun, Khawaja A., 2008. "Vertical externalities in cigarette taxation: Do tax revenues go up in smoke?," Journal of Urban Economics, Elsevier, vol. 64(1), pages 35-48, July.
    16. Willem Sas, 2015. "Commuting in a federation: Horizontal and vertical tax externalities revisited," ERSA conference papers ersa15p690, European Regional Science Association.
    17. Diego Martínez-López, 2018. "Vertical Externalities Revisited: New Results with Public Inputs and Unit Taxation," Hacienda Pública Española / Review of Public Economics, IEF, vol. 225(2), pages 11-30, June.
    18. Keen, Michael J. & Kotsogiannis, Christos, 2004. "Tax competition in federations and the welfare consequences of decentralization," Journal of Urban Economics, Elsevier, vol. 56(3), pages 397-407, November.
    19. Raúl A. Ponce Rodríguez & Ikuho Kochi & Luis E. Gutiérrez Casas, 2015. "The structure of political power and redistribution in economies with multiple governments," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 30(2), pages 269-303.
    20. Blomquist, Sören & Micheletto, Luca, 2004. "Redistribution, In-Kind Transfers and Matching Grants when the Federal Government Lacks Information on Local Costs," Working Paper Series 2004:15, Uppsala University, Department of Economics.

    More about this item

    Keywords

    Environmental regulation; Fiscal federalism; Pollution taxes; Transfer design; Voluntary participation; Pareto-improvements; Minimum price;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:109:y:2021:i:c:s0095069621000462. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622870 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.