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Optimal Climate Policy in a Global Economy

Author

Listed:
  • Anastasios G. Karantounias

    (University of Surrey)

Abstract

This paper studies the optimal climate policy in a global economy. Emissions impose a dynamic, global, negative externality, raising natural questions about international policy coordination. To understand the issues involved, I first build a simple dynamic multicountry model and study the optimal cooperative climate policy that corrects the global externality. Moreover, I move beyond cooperation and study the optimal climate policy for a large country that faces a passive rest of the world. In this setup, corrective taxation motives are intertwined with interest rate manipulation through capital controls. Incentives for carbon taxation are amplified for net importers and mitigated for net exporters.

Suggested Citation

  • Anastasios G. Karantounias, 2026. "Optimal Climate Policy in a Global Economy," School of Economics Discussion Papers 0726, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0726
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    File URL: https://repec.som.surrey.ac.uk/2026/DP07-26.pdf
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    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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