Is the gasoline tax regressive in the twenty-first century?

Poterba (1991a) has much influenced the literature on the distributional effects of carbon pricing. The gist of Poterba’s study is that the distributional incidence of energy/environmental taxes across households is better appreciated if the relative tax burdens are measured against total expenditure instead of annual income. Interpreted as a proxy for lifetime income, total expenditure is more stable over time. As a result, the incidence of energy price increases is less regressive than when annual income is used. This outcome is often taken to lessen the relevance of equity concerns regarding carbon pricing. Almost twenty-five years after Poterba (1991a), Piketty (2014) revived the idea that wealth is a dimension of economic welfare constituting an increasingly important source of inequality. We show that omitting wealth in measuring ability to pay means underestimating the regressivity of carbon pricing and its inequity towards younger people. Using household-level data and statistical matching, we revisit Poterba’s application and compare the distributional incidence of the US federal gasoline tax for different measures of ability to pay: total expenditure, income and wealth-adjusted income

Is the gasoline tax regressive in the twenty-first century? : taking wealth into account

Available online: 30 March 2017Poterba(1991a) has much influenced the literature on the distributional effects of carbon pricing. Poterba argues that the incidence of energy/environmental taxes across households is better appreciated if the relative tax burdens are measured against total expenditure, interpreted as a proxy for lifetime income, instead of annual-income. This way, however, since the distribution of total expenditure is structurally more uniform, the incidence of energy price increases is always less regressive than when annual income is used. This outcome is often taken to lessen the relevance of equity concerns regarding carbon pricing. Almost twenty-five years after Poterba (1991a), Piketty (2014) revived the idea that wealth is a dimension of economic welfare constituting an increasingly important source of inequality. We show that omitting wealth in measuring ability to pay means underestimating the regressivity of carbon pricing and its inequity towards younger people. Using household-level data and statistical matching, we revisit Poterba's application and compare the distributional incidence of the US gasoline tax for different measures of ability to pay: total expenditure, income and wealth-adjusted income. Regressivity is not a reason to forgo carbon pricing as a cost-effective approach to climate mitigation, but calls for consideration and compensation of the distributional effects. (C) 2017 Elsevier B.V. All rights reserved

Low-carbon innovation and investment in the EU ETS

• The empirical literature indicates that, in Phases I and II, the impact of the EU ETS on low-carbon innovation was moderate. The findings of one prominent study, which measures innovation output by patent counts, present a more clearly positive picture. • The empirical literature indicates that, in Phases I and II, low-carbon investments brought about by the EU ETS were typically small-scale, with short amortisation times (e.g., three to five years), producing incremental emission reductions. • In view of the EU’s long-term emission reduction targets, there is scope to improve the dynamic efficiency of the EU ETS by strengthening incentives for low-carbon innovation and investment. Tightening the cap and extending allowance auctioning in a predictable way are the most frequent recommendations in the literature. • There is a compelling economic case, related to innovation spill overs, scale and network economies, competitiveness preservation and energy security, for complementing the EU ETS with stronger R&D policies. • The Innovation Fund – the future EU ETS funding programme for low-carbon innovation – will build on the experiences gained through the existing NER 300 programme in several important respects

The global carbon budget : a conflicting claims problem

An effective climate agreement is urgently required, yet conflict between parties prevails over cooperation. Thanks to advances in science it is now possible to quantify the global carbon budget, the amount of available cumulative CO2 emissions before crossing the 2 C-a similar to threshold (Meinshausen et al. Nature 458(7242):1158-1162, 2009). Countries carbon claims, however, exceed this. Historically such situations have been tackled with bankruptcy division rules. We argue that framing climate negotiations as a classical conflicting claims problem (O'Neill Math Soc Sci 2(4):345-371, 1982) may provide for an effective climate policy. We analyze the allocation of the global carbon budget among parties claiming the maximum emissions rights possible. Based on the selection of some desirable principles, we propose an efficient and sustainable allocation of the available carbon budget for the period 2000 to 2050 taking into account different risk scenarios.Generalitat de CatalunyaMinisterio de Economia y Competitivida

The EU ETS and its interactions with other climate and energy policies

• The current EU climate end energy package includes several policies to reduce greenhouse gas (GHG) emissions by 2020. The main instrument is the EU Emission Trading System (EU ETS). The complexity of this policy package flags up synergies and interactions among different climate policy instruments, in particular, between the EU ETS and energy policies such as those to support Renewable Energy (REN) or energy efficiency. • The EU ETS is, in theory, the most effective way to reduce GHG emissions and any additional climate policies would increase abatement costs. There are, however, several important factors that justify the use of additional instruments, in particular, market, regulatory and policy failures. Moreover, some climate policies have also other objectives such as improving the security of energy supply or the reduction of other pollutants. • There are only a few studies that have empirically analysed the interactions of the EU ETS with other energy and climate policies. They showed that REN policies brought about significant emission reductions in the power sector, but at a higher cost compared to EU ETS carbon prices. Renewable policies also had a negative, though probably limited, impact on carbon prices. • In a recent workshop organised by the Florence School of Regulation Climate (FSR Climate) on this subject, most stakeholders agreed that the presence of market failures justifies additional climate policies, first of all, state support for R&D. However, many of them were also concerned at the negative impact that policies had on carbon prices and welcomed the Market Stability Reserve (MSR) as a positive instrument to mitigate these effects. Regarding REN support schemes, views were mixed. Some stakeholders suggested a gradual phasing out given the recent cost decrease in REN technologies and the negative impact on carbon prices. Others were for continuing REN support, pointing out that REN policy had only limited negative effects on the EU ETS