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Confronting the Carbon Pricing Gap: Second Best Climate Policy

Author

Listed:
  • Aude Pommeret

    (USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc)

  • Francesco Ricci

    (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier)

  • Katheline Schubert

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Confronted with political opposition to the implementation of efficient direct carbon pricing, climate policy relies on alternative policy interventions, such as subsidies to renewables. This paper uses a dynamic macroeconomic model under a carbon budget to study climate policies constrained to keeping a constant level of the carbon tax. We find that it is possible to implement the optimal trajectory by combing an increasing tax on electricity consumption with a feedin-premium paid to electricity produced from renewable sources. Otherwise, when the climate policy relies on the second instrument only, the subsidy to renewables should be so large to foster rapid build up of specialized capital, that it would imply large investment costs and financial burden on the public budget, unless the carbon tax level could be initially set at a high level. Unfortunately, the two solutions with no or low welfare losses raise concerns on their political acceptability too.

Suggested Citation

  • Aude Pommeret & Francesco Ricci & Katheline Schubert, 2022. "Confronting the Carbon Pricing Gap: Second Best Climate Policy," Post-Print hal-03855068, HAL.
  • Handle: RePEc:hal:journl:hal-03855068
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    References listed on IDEAS

    as
    1. Christoph Böhringer & Knut Rosendahl, 2010. "Green promotes the dirtiest: on the interaction between black and green quotas in energy markets," Journal of Regulatory Economics, Springer, vol. 37(3), pages 316-325, June.
    2. Jean-Pierre Amigues & Ujjayant Chakravorty & Gilles Lafforgue & Michel Moreaux, 2022. "Comparing Volume and Blend Renewable Energy Mandates under a Carbon Budget," Annals of Economics and Statistics, GENES, issue 147, pages 51-78.
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    Cited by:

    1. Antoine Bouët & Erica Perego & Vincent Vicard & Mathieu Fouquet & Alexandre Godzinski & Frédéric Ghersi & Sébastien Jean & William l'Heudé & Vincent Aussilloux & Romain Schweizer & Christophe C. Gouel, 2023. "Les incidences économiques de l'action pour le climat. Compétitivité," Working Papers hal-04248556, HAL.
    2. Eichner, Thomas & Schopf, Mark, 2024. "On breadth and depth of climate agreements with pledge-and-review bargaining," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    3. repec:hal:cesptp:hal-04248556 is not listed on IDEAS

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