Economics Dictionary of Arguments

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Fankhauser I 1
Carbon Pricing/Carattini/Carvalho/Fankhauser: (…) to keep the rise in global mean temperatures well below 2°C above preindustrial levels (…) requires a variety of policy interventions, including subsidies to support the breakthrough of low-carbon technologies, regulatory standards to drive down the energy use of buildings, cars and appliances, and financing schemes to overcome capital constraints (Bowen & Fankhauser, 2017)(1). However, an effective carbon price is essential to avoid more severe interferences with the climate system (Stiglitz et al., 2018)(2). Only if the emitters of greenhouse gases face the full environmental costs of their actions will they manage their carbon emissions effectively. Carbon pricing alters relative prices, leading to an automatic adjustment in behavior by firms and consumers, and creating a continuous incentive for investments in low-carbon technological improvements. It works as a decentralized policy, in that it does not require regulators to have information on marginal abatement costs. Agents react to the carbon price based on their marginal abatement cost. By exploiting heterogeneity in marginal abatement costs, carbon pricing allows reducing the overall abatement cost (Weitzman, 1974)(3).
Emissions Trading: Until now, emissions trading has been the carbon pricing instrument of choice in most jurisdictions. In the European Union, the EU Emissions Trading System (EU ETS) covers almost half of total greenhouse gas emissions. Carbon is also traded in Canada, China, New Zealand, Switzerland, and the United States, although most of these schemes are limited in their regional or sectoral scope (World Bank, 2016)(4). >Carbon Taxation/Fankhauser.

1. Bowen, A., & Fankhauser, S. (2017). Good practice in low-carbon policy. In A. Averchenkova, S. Fankhauser, & M. Nachmany (Eds.), Climate change legislation (pp. 123–140). London, England: Edward Elgar.
2. Stiglitz, J. E., Stern, N., Duan, M., Edenhofer, O., Giraud, G., Heal, G., La Rovere, E. L., Morris, A., Moyer, E., Pangestu, M., Shukla, P. R., Sokona, Y., & Winkler, H. (2018). Report of the High-Level Commission on Carbon Prices. Carbon Pricing Leadership Coalition.
3. Weitzman, M. L. (1974). Prices vs. quantities. The Review of Economic Studies, 41(4), 477–491.
4. World Bank. (2016). State and trends of carbon pricing 2016. Washington, DC: Author.

Stefano Carattini, Maria Carvalho & Sam Fankhauser, 2018: “Overcoming public resistance to carbon taxes”. In: Stéphane Hallegatte, Mike Hulme (Eds.), WIREs Climate Change, Vol. 9/5, pages 1-26.

Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution.
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.

Fankhauser I
Samuel Fankhauser
Stefano Carattini
Maria Carvalho,
Overcoming public resistance to carbon taxes 2018

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