Abstract
As more governments consider minimum domestic CO2 prices, we investigate three unilateral options for jurisdictions operating within a multilateral emissions trading system (ETS): 1) an additional CO2 TAX; 2) an auction reserve policy to KILL (invalidate) allowances; and 3) an overcompliance requirement to BILL domestic emitters for extra allowances per ton of emissions. We assess three main economic incentives for unilateral action: environmental benefits, fiscal benefits, and terms-of-trade gains. We derive theoretically optimal unilateral price floors and, based on numerical simulations for the EU ETS, illustrate how a national government's preferred strategy depends on how it values fiscal versus environmental benefits.
| Original language | English |
|---|---|
| Article number | 102816 |
| Pages (from-to) | 1-24 |
| Number of pages | 24 |
| Journal | Journal of Environmental Economics and Management |
| Volume | 119 |
| Early online date | 7 Apr 2023 |
| DOIs | |
| Publication status | Published - May 2023 |
Bibliographical note
Funding Information:Fischer is grateful to the Department of Spatial Economics at the Vrije Universiteit Amsterdam and to the Department of Economics and Institute of the Environment at the University of Ottawa, where this research was undertaken, in part, thanks to funding from the Canada 150 Research Chairs Program. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. We are grateful to numerous seminar participants and two anonymous reviewers, all of whose comments improved the manuscript.
Publisher Copyright:
© 2023 Elsevier Inc.
Funding
Fischer is grateful to the Department of Spatial Economics at the Vrije Universiteit Amsterdam and to the Department of Economics and Institute of the Environment at the University of Ottawa, where this research was undertaken, in part, thanks to funding from the Canada 150 Research Chairs Program. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. We are grateful to numerous seminar participants and two anonymous reviewers, all of whose comments improved the manuscript.
Keywords
- Carbon tax
- CO price floor
- Emissions trading