Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels
This paper develops a global model of climate policy, focusing on the choice between tax and cap-and-trade solutions. The analysis assumes that the world can be split into two regions, with two fuels that both lead to carbon emissions. Region A con...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://hdl.handle.net/10986/19949 |
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okr-10986-199492017-12-14T08:56:29Z Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels Strand, Jon ADVERSE EFFECTS CAPS CARBON CARBON CAP CARBON CONTENT CARBON EMISSIONS CARBON INTENSITY CARBON LEAKAGE CARBON PRICE CARBON QUOTA CARBON TAX CARBON TAXES CARBON TRADING CLIMATE CLIMATE CHANGE CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE EFFECTS CLIMATE POLICY COAL DEMAND RESPONSE DOMESTIC FUEL DYNAMIC MODEL ECONOMIC ANALYSIS ELASTICITIES EMISSION EMISSIONS FROM FUEL EMISSIONS INTENSITY EMISSIONS QUOTAS EMISSIONS REDUCTIONS EMISSIONS TAXES ENERGY CONSUMPTION ENERGY SECURITY ENVIRONMENTAL COSTS ENVIRONMENTAL DAMAGE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL EXTERNALITY ENVIRONMENTAL TAX ENVIRONMENTAL TAXES EXCISE TAX EXTERNALITIES FOSSIL FUEL FOSSIL FUEL PRODUCTION FOSSIL FUELS FREE TRADE FUEL CONSUMPTION FUEL PRICE FUEL PRICES FUEL PRODUCTION FUEL SUBSTITUTION FUEL TAX FUEL TAXATION FUEL TAXES FUELS GHG GLOBAL CARBON EMISSIONS GLOBAL EMISSIONS GLOBAL ENERGY CONSUMPTION GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES IMPORTS LEVEL OF EMISSIONS LOW-CARBON NATURAL GAS OIL OIL COMPANIES OIL IMPORTING OIL SUPPLY PH POLICY MAKERS PRICE OF EMISSIONS PRICE OF FUEL PUBLIC ECONOMICS RENEWABLE ENERGY RENEWABLE RESOURCE RENEWABLE RESOURCES TAX RATES TAXATION OF FUEL TOTAL EMISSIONS TRADABLE EMISSIONS TRANSPORT TRUE UTILITY FUNCTION UTILITY FUNCTIONS This paper develops a global model of climate policy, focusing on the choice between tax and cap-and-trade solutions. The analysis assumes that the world can be split into two regions, with two fuels that both lead to carbon emissions. Region A consumes all fuels, and is responsible for defining and implementing climate policy. Region B produces all of fuel 1 (oil), while fuel 2 (interpreted as coal, natural gas, or renewables) is both produced and consumed in region A. The paper studies three model variants. All involve full policy coordination in each country block, but no coordination across blocks; and all involve an optimal producer tax on fuel 1 by region B. In model 1, region A sets two fuel consumption taxes, one for each fuel. The optimal region A tax on fuel 1 then exceeds the Pigou level as defined by the region; the tax set on fuel 2 is Pigouvian. The presence of a second fuel in region A reduces region B s optimal tax on fuel 1. In model 2, region A sets a common carbon tax, which is lower (higher) for fuel 1 (2) than in model 1. In model 3, region A sets a carbon emissions cap. This enhances region B s strategic position via the trade-off between fuels 1 and 2 in region A, following from the cap. In realistic cases, this leaves region A strategically weaker under a cap policy than under a tax policy, more so the less carbon-intensive the local fuel (2) is. In conclusion, a fuel-consuming and importing region that determines a climate policy will typically prefer to set a carbon tax, instead of setting a carbon emissions cap. The main reason is that a tax is more efficient than a cap at extracting rent from fuel (oil) exporters. 2014-09-02T21:14:43Z 2014-09-02T21:14:43Z 2010-01 http://hdl.handle.net/10986/19949 English en_US Policy Research Working Paper;No. 5171 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
World Bank |
| building |
World Bank Open Knowledge Repository |
| collection |
Online Access |
| language |
English en_US |
| topic |
ADVERSE EFFECTS CAPS CARBON CARBON CAP CARBON CONTENT CARBON EMISSIONS CARBON INTENSITY CARBON LEAKAGE CARBON PRICE CARBON QUOTA CARBON TAX CARBON TAXES CARBON TRADING CLIMATE CLIMATE CHANGE CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE EFFECTS CLIMATE POLICY COAL DEMAND RESPONSE DOMESTIC FUEL DYNAMIC MODEL ECONOMIC ANALYSIS ELASTICITIES EMISSION EMISSIONS FROM FUEL EMISSIONS INTENSITY EMISSIONS QUOTAS EMISSIONS REDUCTIONS EMISSIONS TAXES ENERGY CONSUMPTION ENERGY SECURITY ENVIRONMENTAL COSTS ENVIRONMENTAL DAMAGE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL EXTERNALITY ENVIRONMENTAL TAX ENVIRONMENTAL TAXES EXCISE TAX EXTERNALITIES FOSSIL FUEL FOSSIL FUEL PRODUCTION FOSSIL FUELS FREE TRADE FUEL CONSUMPTION FUEL PRICE FUEL PRICES FUEL PRODUCTION FUEL SUBSTITUTION FUEL TAX FUEL TAXATION FUEL TAXES FUELS GHG GLOBAL CARBON EMISSIONS GLOBAL EMISSIONS GLOBAL ENERGY CONSUMPTION GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES IMPORTS LEVEL OF EMISSIONS LOW-CARBON NATURAL GAS OIL OIL COMPANIES OIL IMPORTING OIL SUPPLY PH POLICY MAKERS PRICE OF EMISSIONS PRICE OF FUEL PUBLIC ECONOMICS RENEWABLE ENERGY RENEWABLE RESOURCE RENEWABLE RESOURCES TAX RATES TAXATION OF FUEL TOTAL EMISSIONS TRADABLE EMISSIONS TRANSPORT TRUE UTILITY FUNCTION UTILITY FUNCTIONS |
| spellingShingle |
ADVERSE EFFECTS CAPS CARBON CARBON CAP CARBON CONTENT CARBON EMISSIONS CARBON INTENSITY CARBON LEAKAGE CARBON PRICE CARBON QUOTA CARBON TAX CARBON TAXES CARBON TRADING CLIMATE CLIMATE CHANGE CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE EFFECTS CLIMATE POLICY COAL DEMAND RESPONSE DOMESTIC FUEL DYNAMIC MODEL ECONOMIC ANALYSIS ELASTICITIES EMISSION EMISSIONS FROM FUEL EMISSIONS INTENSITY EMISSIONS QUOTAS EMISSIONS REDUCTIONS EMISSIONS TAXES ENERGY CONSUMPTION ENERGY SECURITY ENVIRONMENTAL COSTS ENVIRONMENTAL DAMAGE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL EXTERNALITY ENVIRONMENTAL TAX ENVIRONMENTAL TAXES EXCISE TAX EXTERNALITIES FOSSIL FUEL FOSSIL FUEL PRODUCTION FOSSIL FUELS FREE TRADE FUEL CONSUMPTION FUEL PRICE FUEL PRICES FUEL PRODUCTION FUEL SUBSTITUTION FUEL TAX FUEL TAXATION FUEL TAXES FUELS GHG GLOBAL CARBON EMISSIONS GLOBAL EMISSIONS GLOBAL ENERGY CONSUMPTION GLOBAL WARMING GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES IMPORTS LEVEL OF EMISSIONS LOW-CARBON NATURAL GAS OIL OIL COMPANIES OIL IMPORTING OIL SUPPLY PH POLICY MAKERS PRICE OF EMISSIONS PRICE OF FUEL PUBLIC ECONOMICS RENEWABLE ENERGY RENEWABLE RESOURCE RENEWABLE RESOURCES TAX RATES TAXATION OF FUEL TOTAL EMISSIONS TRADABLE EMISSIONS TRANSPORT TRUE UTILITY FUNCTION UTILITY FUNCTIONS Strand, Jon Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| relation |
Policy Research Working Paper;No. 5171 |
| description |
This paper develops a global model of
climate policy, focusing on the choice between tax and
cap-and-trade solutions. The analysis assumes that the world
can be split into two regions, with two fuels that both lead
to carbon emissions. Region A consumes all fuels, and is
responsible for defining and implementing climate policy.
Region B produces all of fuel 1 (oil), while fuel 2
(interpreted as coal, natural gas, or renewables) is both
produced and consumed in region A. The paper studies three
model variants. All involve full policy coordination in each
country block, but no coordination across blocks; and all
involve an optimal producer tax on fuel 1 by region B. In
model 1, region A sets two fuel consumption taxes, one for
each fuel. The optimal region A tax on fuel 1 then exceeds
the Pigou level as defined by the region; the tax set on
fuel 2 is Pigouvian. The presence of a second fuel in region
A reduces region B s optimal tax on fuel 1. In model 2,
region A sets a common carbon tax, which is lower (higher)
for fuel 1 (2) than in model 1. In model 3, region A sets a
carbon emissions cap. This enhances region B s strategic
position via the trade-off between fuels 1 and 2 in region
A, following from the cap. In realistic cases, this leaves
region A strategically weaker under a cap policy than under
a tax policy, more so the less carbon-intensive the local
fuel (2) is. In conclusion, a fuel-consuming and importing
region that determines a climate policy will typically
prefer to set a carbon tax, instead of setting a carbon
emissions cap. The main reason is that a tax is more
efficient than a cap at extracting rent from fuel (oil) exporters. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Strand, Jon |
| author_facet |
Strand, Jon |
| author_sort |
Strand, Jon |
| title |
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| title_short |
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| title_full |
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| title_fullStr |
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| title_full_unstemmed |
Taxes and Caps as Climate Policy Instruments with Domestic and Imported Fuels |
| title_sort |
taxes and caps as climate policy instruments with domestic and imported fuels |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://hdl.handle.net/10986/19949 |
| _version_ |
1610779078927843328 |