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Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects

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  • Frédéric Gonand

Abstract

A rising share of renewables in the energy mix pushes up the average price of energy - and so does a carbon tax. However the former bolsters the accumulation of capital whereas the latter, if fully recycled, does not. Thus, in general equilibrium, the effects on growth and intertemporal welfare of these two environmental policies differ. The present article assesses and compares these effects. It relies on a computable general equilibrium model with overlapping generations, an energy module and a public finance module. The main result is that an increasing share of renewables in the energy mix and a fully recycled carbon tax have opposite (though limited) impacts on activity and individuals’ intertemporal welfare in the long run. The recycling of a carbon tax fosters consumption and labour supply, and thus growth and welfare, whereas an increasing share of renewables does not. Results also suggest that a higher share of renewables and a recycled carbon tax trigger intergenerational redistributive effects, with the former being relatively detrimental for young generations and the latter being pro-youth. The policy implication is that a social planner seeking to modify the structure of the energy mix while achieving some neutrality as concerns the GDP and triggering some proyouth intergenerational equity, could usefully contemplate the joint implementation of higher quantitative targets for the future development of renewables and a carbon tax fully recycled through lower proportional taxes.

Suggested Citation

  • Frédéric Gonand, 2014. "Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects," Working Papers 1408, Chaire Economie du climat.
  • Handle: RePEc:cec:wpaper:1408
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    More about this item

    Keywords

    Energy transition; intergenerational redistribution; overlapping generations; carbon tax; general equilibrium;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • L7 - Industrial Organization - - Industry Studies: Primary Products and Construction
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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