cover image: WORKING PAPER - 22-18 The Portfolio of Economic Policies Needed to Fight Climate Change

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WORKING PAPER - 22-18 The Portfolio of Economic Policies Needed to Fight Climate Change

14 Nov 2022

The sizable and costly transformation of economies that is required to achieve the targets of the Paris Agreement (Conference of the Parties, COP21) or the more recent “net zero emissions by 2050 or 2060” pledges of some major polluting countries still needs to happen.1 The longer action is deferred, the more costly and disorganized the transition will be. [...] Certainly, the price in the EU ETS at the time—about €20 for the emission of 1 ton of CO2 in fall 2018—was well below the €55 carbon tax that brought the Gilets Jaunes into the streets; but the fact that this levy on consumers occurs at the production stage has left it largely unnoticed by citizens. [...] 3.1.2 Determination of the carbon price How should the carbon price be set? Under the Pigouvian approach, the price of 1 ton of CO2 should be equal to the discounted value of the flow of damages it generates. [...] If banking of allowances is allowed, and if the political authority is credible about the intertemporal carbon budget, the timing of the auction of allowances is irrelevant: The market will efficiently determine the current level of emissions and the speed at which they will be reduced. [...] A case in point is the change in lighting, which came from a combination of regulation (the banning of incandescent light bulbs in the late 2000s and early 2010s) and research and development on alternatives (LEDs, from the theory in the early 20th century to the breakthrough on blue LED in the 1990s).
Pages
39
Published in
United States of America