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Second-best Climate Policy

  • Hoel, Michael

    ()

    (Dept. of Economics, University of Oslo)

Countries with an active climate policy often use several other policy instruments in addition to a price on carbon emissions, such as subsidies to renewable energy. An obvious reason for subsidizing alternatives to carbon energy is that the price of carbon emissions is "too low". The paper derives implications for a second-best climate policy if for some reason the price of carbon emissions is lower than the Pigovian level, and also discusses reasons policy makers might have for setting the tax rate at an ine¢ ciently low level. Even if the current tax rate is optimally set, governments cannot commit to future tax rates. In some cases this inabilty to commit may justify subsidies to investments in renewable energy.

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File URL: https://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2012/Memo-04-2012.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 04/2012.

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Length: 29 pages
Date of creation: 26 Jan 2012
Date of revision:
Handle: RePEc:hhs:osloec:2012_004
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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  1. Alistair Ulph & David Ulph, 2011. "Optimal Climate Change Policies When Governments Cannot Commit," Discussion Paper Series, Department of Economics 201104, Department of Economics, University of St. Andrews.
  2. Michael Hoel, 2011. "The Supply Side of CO 2 with Country Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 846-865, December.
  3. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
  4. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
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