Arbeitspapier
Optimal Unilateral Carbon Policy
We derive the optimal unilateral policy in a general equilibrium model of trade and climate change where one region of the world imposes a climate policy and the rest of the world does not. A climate policy in one region shifts activities—extraction, production, and consumption—in the other region. The optimal policy trades off the costs of these distortions. The optimal policy can be implemented through: (i) a nominal tax on extraction at a rate equal to the global marginal harm from emissions, (ii) a tax on imports of energy and goods, and a rebate of taxes on exports of energy but not goods, both at a lower rate than the extraction tax rate, and (iii) a goods-specific export subsidy. The policy controls leakage by combining supply-side and demand-side taxes to control the price of energy in the non-taxing region. It exploits international trade to expand the reach of the climate policy. We calibrate and simulate the model to illustrate how the optimal policy compares to more traditional policies such as extraction, production, and consumption taxes and combinations of those taxes. The simulations show that combinations of supply-side and demand-side taxes are much better than simpler policies and can perform nearly as well as the optimal policy.
- Language
-
Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 9409
- Classification
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Wirtschaft
Trade and Environment
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Climate; Natural Disasters and Their Management; Global Warming
- Subject
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carbon taxes
border adjustments
leakage
climate change
- Event
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Geistige Schöpfung
- (who)
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Kortum, Samuel
Weisbach, David A.
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
-
2021
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Kortum, Samuel
- Weisbach, David A.
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2021
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