We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then...

Two main approaches have been implemented in regional CO2 markets to address competitiveness and carbon leakage: output based allocation (Australia, California, New Zealand) and capacity based allocation (EU). This paper characterizes the best policy, given that auctioning with border adjustment...

We analyse the optimal design of unilateral climate policy in an open economy where the government is committed to a target for reduction of domestic CO2 emissions but where it is also concerned about carbon leakage. We highlight the importance of distinguishing between leakage at the extensive...

We analyze how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage...

A cap on global warming implies a tighter carbon budget which can be enforced with a credible second-best renewable energy subsidy designed to lock up fossil fuel and curb cumulative emissions. Such a subsidy brings forward the end of the fossil fuel era, but accelerates fossil fuel extraction...

For any emission trading system (ETS) with quantity-based endogenous supply of allowances, there exists a negative demand shock, e.g. induced by abatement policy, that increases aggregate supply and thus cumulative emissions. We prove this green paradox for a general model and then apply it to...

We develop a dynamic regulation game for a stock externality under asymmetric information and future market uncertainty. Within this framework, regulation is characterized as the implementation of a welfare-maximization program conditional on informational constraints. We identify the most...

We consider a global externality of resource use, with the example of greenhouse gas emissions from fossil fuels. A region concerned about climate change may reduce its fuel deposit offer, reduce fuel consumption, and withdraw investments into global fuel extraction. We study leakage rates and...

Scientific expertise suggests that mitigating extreme world-wide climate change damages requires avoiding increases in the world mean temperature exceeding 2° Celsius. To achieve the two degree target, the cumulated global emissions must not exceed some limit, the so-called global carbon...

Carbon pricing regulates emission flows and collects rents from underlying fossil resource stocks. The resulting investment shift implies lower climate policy costs and improved welfare if capital is underaccumulated. We prove that under emission trading, such a beneficial macroeconomic...