Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change

A major obstacle for the transformation to a low-carbon economy is the risk of a carbon lock-in: fossil fuel-based ('dirty') technologies dominate the market although their carbon-free ('clean') alternatives are dynamically more efficient. We study the interaction of learning-by-doing spillovers and the substitution elasticity between the clean and the dirty sector in an intertemporal general equilibrium model. We find that the substitution possibilities between the two sectors have an ambivalent effect: although a high substitution elasticity requires less aggressive mitigation policies than a low one, it creates a greater lock-in in the absence of regulation. The optimal policy response consists of a permanent carbon tax as well as a learning subsidy for clean technologies. A single policy instrument can also avoid high welfare losses, but a more stringent mitigation target can only be achieved at painful costs. We demonstrate that the policy implication of [Acemoglu et al. 2012] is limited in scope. Our numerical results also highlight that infrastructure provision is crucial to facilitate the low-carbon transformation.structural change, low-carbon economy, carbon lock-in, mitigation policies, learning-by-doing

How to make a carbon tax reform progressive: The role of subsistence consumption

A major obstacle for introducing carbon pricing are its distributional implications: climate policy is believed to be regressive. We illuminate the role of carbon-intensive subsistence consumption for the prospect of making carbon pricing progressive. The distributional impacts of a carbon tax reform depend on the revenue recycling options: we prove that lump-sum transfers proportional to income and linear income tax cuts make the reform regressive and that this is due only to subsistence consumption. By contrast, returning the revenue as uniform lump-sum transfers renders the carbon tax reform progressive

How to make a carbon tax reform progressive: The role of subsistence consumption

This letter analyzes the distributional effects of a carbon tax reform when households must consume carbon-intensive goods above a subsistence level. The reform is progressive if revenues are recycled as uniform lump-sum transfers, in other cases it is regressive

Environmental taxation, inequality and Engel’s law : the double dividend of redistribution

Empirical evidence shows that low-income households spend a high share of their income on pollution-intensive goods. This fuels the concern that an environmental tax reform could be regressive. We employ a framework which accounts for the distributional effect of environmental taxes and the recycling of the revenues on both households and firms to quantify changes in the optimal tax structure and the equity impacts of an environmental tax reform. We characterize when an optimal environmental tax reform does not increase inequality, even if the tax system before the reform is optimal from a non-environmental point of view. If the tax system before the reform is calibrated to stylized data—and is thus non-optimal—we find that there is a large scope for inequality reduction, even if the government is restricted in its recycling options

Making Carbon Pricing Work

Carbon-pricing initiatives are spreading at an unprecedented rate, but a considerable gap remains between actual prices and those required to achieve ambitious climate change mitigation. This perspective shows that much of this gap could be closed by enhancing the public’s acceptance of carbon pricing through the effective use of the substantial revenues raised. We synthesize findings regarding the use of carbon revenues both from recent behavioral and political studies as well as from economic analyses of equity and efficiency. We then compare real-world carbon pricing regimes with insights derived from theory. We find that uniform lump-sum recycling of carbon revenues to citizens is favored among behavioral and political studies that emphasize the importance of distributional fairness, revenue salience, political trust, and policy stability amid partisan changes in government. It is also successfully employed in several real-world recycling schemes, although alternative uses of revenues such as green spending may be appropriate in different national contexts

Making Carbon Pricing Work

Carbon-pricing initiatives are spreading at an unprecedented rate, but a considerable gap remains between actual prices and those required to achieve ambitious climate change mitigation. This perspective shows that much of this gap could be closed by enhancing the public’s acceptance of carbon pricing through the effective use of the substantial revenues raised. We synthesize findings regarding the use of carbon revenues both from recent behavioral and political studies as well as from economic analyses of equity and efficiency. We then compare real-world carbon pricing regimes with insights derived from theory. We find that uniform lump-sum recycling of carbon revenues to citizens is favored among behavioral and political studies that emphasize the importance of distributional fairness, revenue salience, political trust, and policy stability amid partisan changes in government. It is also successfully employed in several real-world recycling schemes, although alternative uses of revenues such as green spending may be appropriate in different national contexts

Toward Optimal Meat Pricing: Is It Time to Tax Meat Consumption?

Livestock is known to contribute significantly to climate change and to negatively impact global nitrogen cycles and biodiversity. However, there has been little research on economically efficient policies for regulating meat production and consumption. In the absence of first-best policy instruments for the livestock sector, second-best consumption taxes on meat can address multiple environmental externalities simultaneously as well as improve diet-related public health. In this article, we review the empirical evidence on the social costs of meat and examine the rationales for taxing meat consumption in high-income countries. We approach these issues from the perspective of public, behavioral, and welfare economics, focusing in particular on (1) the interaction of multiple environmental externalities of meat production and consumption, (2) “alternative protein” technologies, (3) adverse effects on human health, (4) animal welfare, and (5) distributional effects of meat taxation. We present preliminary estimates of the environmental social costs associated with meat consumption and find that meat is significantly underpriced. We conclude by identifying several directions for future research on optimal meat taxation