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Global carbon price asymmetry

Author

Listed:
  • Robert Ritz

    (EPRG, CJBS, University of Cambridge)

Abstract

This paper studies a social planner who chooses countries’ carbon prices so as to maximize global welfare. Product markets are characterized by firm heterogeneity, market power, and international trade. Because of the market-power distortion, the planner’s optimal policy is second-best. The main insight is that optimal carbon prices may be highly asymmetric: zero in some countries and above the social cost of carbon in countries with relatively dirty production. This result obtains even though a uniform global carbon price is always successful at reducing countries’ emissions. Competition policy that mitigates market power may enable stronger climate action.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Robert Ritz, 2021. "Global carbon price asymmetry," Working Papers EPRG2116, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg2116
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    Cited by:

    1. Hiroyuki Nishiyama & Mizuki Tsuboi, 2024. "An employment double dividend and welfare in a North–South model of trade with or without international policy coordination," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 26(3), pages 591-612, July.
    2. Wang, Junbo & Ma, Zhenyu & Fan, Xiayang, 2023. "We are all in the same boat: The welfare and carbon abatement effects of the EU carbon border adjustment mechanism," MPRA Paper 118978, University Library of Munich, Germany.
    3. Fan, Jing-Li & Li, Zezheng & Ding, Zixia & Li, Kai & Zhang, Xian, 2023. "Investment decisions on carbon capture utilization and storage retrofit of Chinese coal-fired power plants based on real option and source-sink matching models," Energy Economics, Elsevier, vol. 126(C).
    4. Manon Desjardins & Bernard Sinclair-Desgagné, 2025. "Internal Carbon Pricing in the Multidivisional Firm," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 88(8), pages 2029-2057, August.
    5. Shiyi Wu & Rui Niu, 2024. "Development of carbon finance in China based on the hybrid MCDM method," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    6. Li, Yangfan & Zhang, Xiaoyun, 2023. "Recycling scheme of carbon pricing for inclusive decarbonization and energy transition: A recursive computable general equilibrium analysis in China," Renewable Energy, Elsevier, vol. 217(C).

    More about this item

    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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