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Pricing carbon in a multi-sector economy with social discounting

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  • Kalsbach, Oliver
  • Rausch, Sebastian

Abstract

Economists tend to view a uniform emissions price as the most cost-effective approach to reducing greenhouse gas emissions. This paper offers a different view, focusing on economies where society values the well-being of future generations more than private actors. Employing analytical and numerical general equilibrium models, we show that a uniform carbon price is efficient only under restrictive assumptions about technology homogeneity and intertemporal decision-making. Non-uniform pricing spurs capital accumulation and benefits future generations. Depending on sectoral heterogeneity in the substitutability between capital and energy inputs, we find that optimal carbon prices differ widely across sectors and yield substantial welfare gains relative to uniform pricing.

Suggested Citation

  • Kalsbach, Oliver & Rausch, Sebastian, 2021. "Pricing carbon in a multi-sector economy with social discounting," ZEW Discussion Papers 21-060, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:21060
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    1. Alkis Blanz & Beatriz Gaitan, 2023. "Reducing residential emissions: carbon pricing vs. subsidizing retrofits," Papers 2310.15687, arXiv.org.

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    More about this item

    Keywords

    Sectoral Carbon Pricing; Differentiated Carbon Taxes; Climate Policy; Social Discounting;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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