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Is a market-based approach to climate policy desirable?

Author

Listed:
  • Felix Bierbrauer

    (University of Cologne)

Abstract

A uniform price for carbon is at the center of market-based approaches to climate policy. Actual climate policy, by contrast, has many sector-specific rules. This paper studies the desirability of the market-based approach using tools from the theory of taxation. It is found that a justification for the market-based approach can be given, it involves indifference with respect to the distributive consequences of climate policy, and it requires that a condition of proportional fiscal externalities is met. If these conditions are not met, a sector specific approach is preferable.

Suggested Citation

  • Felix Bierbrauer, 2024. "Is a market-based approach to climate policy desirable?," ECONtribute Discussion Papers Series 299, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:299
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_299_2024.pdf
    File Function: First version, 2024
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    References listed on IDEAS

    as
    1. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2020. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," Econometrica, Econometric Society, vol. 88(2), pages 469-493, March.
    2. Sachs, Dominik & Tsyvinski, Aleh & Werquin, Nicolas, 2020. "Nonlinear Tax Incidence And Optimal Taxation In General Equilibrium," Munich Reprints in Economics 84782, University of Munich, Department of Economics.
    3. Salanié, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, December.
    4. Mikhail Golosov & Aleh Tsyvinski & Nicolas Werquin, 2014. "A Variational Approach to the Analysis of Tax Systems," NBER Working Papers 20780, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Climate policy; equity-efficiency trade-off; optimal taxation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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