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Combining International Cap-and-Trade with National Carbon Taxes

Author

Listed:
  • Peter Heindl

    (Centre for European Economic Research (ZEW))

  • Peter J. Wood

    (Crawford School of Public Policy, The Australian National University)

  • Frank Jotzo

    () (Crawford School of Public Policy, The Australian National University)

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

  • Peter Heindl & Peter J. Wood & Frank Jotzo, 2014. "Combining International Cap-and-Trade with National Carbon Taxes," CCEP Working Papers 1418, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:ccepwp:1418
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    File URL: https://ccep.crawford.anu.edu.au/sites/default/files/publication/ccep_crawford_anu_edu_au/2014-11/ccep1418.pdf
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    References listed on IDEAS

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    Cited by:

    1. Simon Quemin & Christian de Perthuis, 2017. "Transitional restricted linkage between Emissions Trading Schemes," Working Papers 1701, Chaire Economie du climat.
    2. Bernard Caillaud & Gabrielle Demange, 2017. "Joint Design of Emission Tax and Trading Systems," Annals of Economics and Statistics, GENES, issue 127, pages 163-201.
    3. 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.
    4. 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.
    5. 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).
    6. 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 - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 146924.
    7. Bernard Caillaud & Gabrielle Demange, 2016. "Joint Design of Emission Tax and Trading Systems," Working Papers halshs-01112185, HAL.
    8. 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.

    More about this item

    Keywords

    prices vs. quantities; linking; cap-and-trade; carbon tax; uncertainty; EU Emissions Trading Scheme;

    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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