Combining International Cap-and-Trade with National Carbon Taxes

Peter Heindl, Peter J Wood, Frank Jotzo

    Research output: Chapter in Book/Report/Conference proceedingChapter

    Abstract

    This chapter examines the effects of combining an international cap-and-trade scheme with national carbon taxes. We consider a two-country stochastic partial equilibrium model with log-normally distributed uncertainty. The situation is analogous to the situation where European countries impose national carbon taxes in addition to the EU emissions trading. The allowance price in the joint cap-and-trade scheme depends on the tax rate, the relative size of countries and abatement options, the magnitude of uncertainty, and correlation of abatement costs. In most cases, the additional tax will not lead to additional production of the public good beyond the fixed targets. The additional tax results in higher costs of abatement to the country introducing the additional tax, and higher costs overall.
    Original languageEnglish
    Title of host publicationEmissions Trading as a Policy Instrument: Evaluation and Prospects
    Editors Marc Gronwald, Beat Hintermann
    Place of PublicationCambridge, London
    PublisherMIT Press
    Pages123-147
    Edition1st
    ISBN (Print)9780262029285
    DOIs
    Publication statusPublished - 2015

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