Making Carbon Pricing Work

Klenert, David and Mattauch, Linus and Combet, Emmanuel and Edenhofer, Ottmar and Hepburn, Cameron and Rafaty, Ryan and Stern, Nicholas (2017): Making Carbon Pricing Work.

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: carbon pricing; carbon tax; revenue recycling; uniform lump-sum transfers; green spending; behavioral economics; political science; inequality; equity
• Subjects: D - Microeconomics > D3 - Distribution; D - Microeconomics > D6 - Welfare Economics; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; H - Public Economics > H2 - Taxation, Subsidies, and Revenue; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents

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