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Combining International Cap-and-Trade with National Carbon Taxes

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  • Heindl, Peter
  • Wood, Peter J.
  • Jotzo, Frank

Abstract

This paper examines the effects of combining an international cap-and-trade scheme with national carbon taxes. We consider a two-country stochastic partial equilibrium model with log-normally distributed uncertainty. The situation is analogous to the situation where European countries impose national carbon taxes in addition to the EU emissions trading. The allowance price in the joint cap-and-trade scheme depends on the tax rate, the relative size of countries and abatement options, the magnitude of uncertainty, and correlation of abatement costs. In most cases, the additional tax will not lead to additional production of the public good beyond the fixed targets. The additional tax results in higher costs of abatement to the country introducing the additional tax, and higher costs overall.

Suggested Citation

  • Heindl, Peter & Wood, Peter J. & Jotzo, Frank, 2014. "Combining International Cap-and-Trade with National Carbon Taxes," Working Papers 249501, Australian National University, Centre for Climate Economics & Policy.
  • Handle: RePEc:ags:ancewp:249501
    DOI: 10.22004/ag.econ.249501
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    References listed on IDEAS

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    Cited by:

    1. Bernard Caillaud & Gabrielle Demange, 2017. "Joint Design of Emission Tax and Trading Systems," Annals of Economics and Statistics, GENES, issue 127, pages 163-201.
    2. Simon Quemin & Christian Perthuis, 2019. "Transitional Restricted Linkage Between Emissions Trading Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(1), pages 1-32, September.
    3. Heindl, Peter & Kanschik, Philipp, 2016. "Ecological sufficiency, individual liberties, and distributive justice: Implications for policy making," Ecological Economics, Elsevier, vol. 126(C), pages 42-50.
    4. Burmeister, Johannes & Peterson, Sonja, 2016. "National climate policies in times of the European Union Emissions Trading System (EU ETS)," Kiel Working Papers 2052, Kiel Institute for the World Economy (IfW).
    5. Osberghaus, Daniel & Heindl, Peter & Sommerfeld, Katrin & Höfling, Holger, 2016. "KfW/ZEW CO2 Barometer 2016 - Carbon Edition. How the EU ETS can contribute to meeting the ambitious targets of the Paris Agreement," KfW/ZEW-CO2-Barometer, ZEW - Leibniz Centre for European Economic Research, number 146924.
    6. Almansoori, A. & Betancourt-Torcat, A., 2016. "Design of optimization model for a hydrogen supply chain under emission constraints - A case study of Germany," Energy, Elsevier, vol. 111(C), pages 414-429.
    7. Compernolle, T. & Welkenhuysen, K. & Huisman, K. & Piessens, K. & Kort, P., 2017. "Off-shore enhanced oil recovery in the North Sea: The impact of price uncertainty on the investment decisions," Energy Policy, Elsevier, vol. 101(C), pages 123-137.

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    More about this item

    Keywords

    Resource /Energy Economics and Policy; Risk and Uncertainty;

    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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