Overlapping Climate Policies
Major carbon-pricing systems in Europe and North America involve multiple jurisdictions (countries or states). Individual jurisdictions often pursue additional initiatives—such as unilateral carbon price floors, legislation to phase out coal, aviation taxes or support programs for renewable energy—that overlap with the wider carbon-pricing system. We develop a general framework to study how the climate benefit of such overlapping policies depends on their design, location and timing. Some policies leverage additional climate benefits elsewhere in the system while others backfire by raising aggregate emissions. Our model encompasses almost every type of carbon-pricing system used in practice.
We thank Severin Borenstein, Dallas Burtraw, Jim Bushnell, Reyer Gerlach, Marten Ovaere, Sebastian Rausch, Mar Reguant, Knut Einar Rosendahl, Herman Vollebergh and Maximilian Willner for helpful comments and suggestions. Perino's research was funded by the DFG (German Research Foundation) under Germany's Excellence Strategy, cluster EXC 2037 “Climate, Climatic Change, and Society” (project 390683824) and ARIADNE (BMBF project 03SFK5S0). Van Benthem thanks the National Science Foundation (award SES1530494), the Kleinman Center for Energy Policy at the University of Pennsylvania, and the Analytics at Wharton Data Science and Business Analytics Fund for support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Robert A. Ritz
Robert A. Ritz serves on the academic advisory panels at the Competition & Markets Authority (the UK’s competition and antitrust body) and at Ofgem (the regulator for electricity and natural gas markets in Great Britain). He is also a principal at Vivid Economics (a London-based economics consultancy). None of these organizations have supported or taken any influence on the paper.