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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 investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first- best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency.

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 investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first- best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency., CEPA Discussion Papers; 28

Passing federal environmental policy reform is a challenge as the approval of interest groups such as consumers and state-level governments is often a prerequisite. Among others, the burden sharing's progressivity has a large impact on reform approval. We investigate how carbon tax payments by states to a federal authority are influenced by differences in technological emission intensity and wealth and show how they can turn out to be at the expense of poor states. We show that a uniform federal carbon tax that is endorsed by all states with equal per capita transfers can theoretically put a higher burden on poorer states than richer states. The opposite applies for transfers based on historical emissions (sovereignty transfers) which reduce the burden of emissionintensive states. We test our results numerically in a general equilibrium model with a vertical federalism governance structure calibrated to the European Union. Our simulations show that a federal minimum emissions tax with sovereignty transfers is twice as high as for equal per capita transfers and also has a progressive effect.

Climate policy needs to set incentives for actors who face imperfect, distorted markets and large uncertainties about the costs and benefits of abatement. Investors price uncertain assets according to their expected return and risk (carbon beta). We study carbon pricing and financial incentives in a consumption-based asset pricing model distorted by technology spillover and timeinconsistency. We find that both distortions reduce the equilibrium asset return and delay investment in abatement. However, their effect on the carbon beta and risk premium of abatement can be decreasing (when innovation spillovers are not anticipated) or increasing (when climate policy is not credible). Efficiency can be restored by carbon pricing and financial incentives, implemented in our model by a regulator and by a long-term investment fund. The regulator commands carbon pricing and the fund provides subsidies to reduce technology costs or to boost investment returns. The investment subsidy creates a financial incentive that complements the carbon price. In this way the investment fund can support climate policy when the actions of the regulator fall short. These instruments must also consider the investment risk and the sequence of their implementation. The investment fund can then pave the way for carbon pricing in later periods by preventing a capital misallocation that would be too expensive to correct. Thus the investment fund improves the feasibility of ambitious carbon pricing.

Im Jahr 2021 wurde in Deutschland die sogenannte CO2-Bepreisung fossiler Kraft- und Brennstoffe eingeführt, um deren Verbrauch zum Zwecke des Klimaschutzes zu reduzieren. Dieser Preisaufschlag auf fossile Energieträger wird in den kommenden Jahren sukzessive erhöht. Dieser Beitrag untersucht die Akzeptanz der CO2-Bepreisung für die Zeit kurz vor Einführung des CO2-Preises im Jahr 2019. Eine Erhebung unter mehr als 6.000 Haushalten zeigt, dass eine leichte absolute Mehrheit von 53,7% der Befragten grundsätzlich bereit ist, zu Klimaschutzzwecken höhere Kosten in Kauf zu nehmen. Die Zustimmung zu einer CO2-Bepreisung nimmt jedoch mit sinkendem Einkommen deutlich ab: Bei Befragten der untersten Einkommensgruppe liegt die Zustimmungsrate bei knapp unter 40%. Erwartungsgemäß verringert sich die Zustimmung auch mit der Höhe des CO2-Preises. So wurde ein CO2-Preis von 50 Euro von einer Mehrheit der Befragten von 50,6% abgelehnt. Um bei bis zum Jahr 2025 auf 55 Euro steigenden CO2-Preisen die mehrheitliche Akzeptanz der Bürger zu gewinnen, wird hier für einen breit angelegten Ausgleichsmechanismus durch Reduzierung verzerrender und sozial ungerechter Steuern und Abgaben auf den Strompreis plädiert, der insbesondere Gering- und Durchschnittsverdienern zugutekommt. Andernfalls könnten die über die Zeit steigenden CO2-Preise eine hohe soziale Sprengkraft entfalten.

Im Jahr 2021 wurde in Deutschland die sogenannte CO2-Bepreisung fossiler Kraft- und Brennstoffe eingef��hrt, um deren Verbrauch zum Zwecke des Klimaschutzes zu reduzieren. Dieser Preisaufschlag auf fossile Energietr��ger wird in den kommenden Jahren sukzessive erh��ht. Dieser Beitrag untersucht die Akzeptanz der CO2-Bepreisung f��r die Zeit vor Einf��hrung des CO2-Preises im Jahr 2019. Eine Erhebung unter mehr als 6.000 Haushalten zeigt, dass eine leichte absolute Mehrheit von 53,7 % der Befragten grunds��tzlich bereit ist, zu Klimaschutzzwecken h��here Kosten in Kauf zu nehmen. Die Zustimmung zu einer CO2-Bepreisung nimmt jedoch mit sinkendem Einkommen deutlich ab: Bei Befragten der untersten Einkommensgruppe liegt die Zustimmungsrate bei knapp unter 40 %. Erwartungsgem���� verringert sich die Zustimmung auch mit der H��he des CO2-Preises. So wurde ein CO2-Preis von 50 Euro von einer Mehrheit der Befragten von 50,6 % abgelehnt. Um bei bis zum Jahr 2025 auf 55 Euro steigenden CO2-Preisen die mehrheitliche Akzeptanz der B��rger zu gewinnen, wird hier f��r einen breit angelegten Ausgleichsmechanismus durch die Reduzierung verzerrender und sozial ungerechter Steuern und Abgaben auf den Strompreis pl��diert, die insbesondere Gering- und Durchschnittsverdienern zugutekommt. Andernfalls k��nnten die ��ber die Zeit steigenden CO2-Preise eine hohe soziale Sprengkraft entfalten., Discussion Paper / SFB823;28/2021

Die Kommission hat ihr ���Fit For 55��� Paket vorgelegt, welches das 55%-Reduktionsziel f��r 2030 wie folgt auf die Sektoren aufteilt: Die Sektoren im bestehenden EU-Emissionshandelssystem (ETS), also haupts��chlich Strom und Industrie, sollen ihre Emissionen um 61% gegen��ber 2005 mindern. Alle anderen Sektoren fallen unter die Effort Sharing Regulation (ESR) und sollen ihre Emissionen um 40% gegen��ber 2005 mindern. In diesem Papier analysieren wir die notwendigen CO2-Preise zur Zielerreichung unter der Annahme, dass eine Bepreisung von CO2 das einzige Instrument der Emissionsminderung ist. Werden weitere Politikinstrumente eingesetzt, zum Beispiel Technologiestandards, dann k��nnen zwar die CO2-Preise abgesenkt und die Verteilung der Vermeidungskosten auf Haushalte und Unternehmen ver��ndert werden; jedoch kann das Niveau der gesamtwirtschaftlichen Vermeidungskosten nur dann vermindert werden, wenn die zus��tzlichen Politikinstrumente bestehende Marktversagen verringern und dabei nicht mehr neue Ineffizienzen schaffen. Die notwendigen CO2-Preise im Jahre 2030 erreichen dabei 275 EUR/t in den ESR-Sektoren (Bandbreite: 210-405 EUR/t). Diese Preise sind mehr als doppelt so hoch wie die f��r das ETS-Ziel notwendigen CO2-Preise (130 EUR/t, Bandbreite 95-210 EUR/t). Allerdings wird die H��he der notwendigen CO2-Preise ma��geblich davon beeinflusst, a) wie die Emissionsminderungen zwischen ETS und ESR aufgeteilt werden, b) wie schnell der Markthochlauf emissionsfreier Technologien ��� insbesondere der Elektromobilit��t ��� realisiert wird und wie schnell Wind- und Solarstrom ausgebaut, sowie die notwendigen Flexibilit��ten im Stromsystem durch Netzausbau, Speicher und Lastmanagement bereitgestellt werden k��nnen. F��r den Fall, dass der ETS 50% der zus��tzlichen Minderungen des ESR ��bernimmt, gleichen sich beide Preise stark an: 190 EUR/t im ETS und 195 EUR/t in der ESR. F��r die Politikinstrumente ergeben sich zwei Schlussfolgerungen: Ein h��herer Vermeidungsbeitrag der ETS-Sektoren k��nnte die CO2-Preise angleichen, und somit das 2030-Ziel kosteng��nstiger erreichen. Allerdings k��nnte eine solche Aufteilung auch zu sehr hohen ESR-CO2-Preisen zu einem sp��teren Zeitpunkt f��hren, falls kurzfristig niedrigere CO2-Preise in den ESR-Sektoren den Markthochlauf emissionsfreier Technologien ausbremsen. Dies wird aber nur dann der Fall sein, wenn der langfristige Pfad der CO2-Preise von den Investoren als nicht glaubw��rdig wahrgenommen wird. Die Kostenersparnisse h��ngen sowohl von den Erwartungen der Investoren als auch davon ab, welche zus��tzlichen Ma��nahmen noch auf europ��ischer und nationaler Ebene implementiert werden, die die Glaubw��rdigkeit der langfristigen Zielerreichung st��rken. Die gro��e Bandbreite der notwendigen CO2-Preise je nach Annahmen zum Markthochlauf zeigt die Bedeutung von komplement��rem Infrastrukturausbau und Technologiepolitik. So k��nnten beispielsweise der Ausbau der Ladeinfrastruktur und Investitionsanreize den Markthochlauf emissionsfreier Technologien f��rdern. Solche Ma��nahmen ��� wie sie auch im Fit-for-55 Paket der EU Kommision vorgesehen sind ��� k��nnen bestehende Marktversagen korrigieren und so den notwendigen CO2-Preis senken sowie die Sicherheit der Klimazielerreichung erh��hen. Allerdings gehen diese Ma��nahmen oftmals mit versteckten Kosten einher, und ein sozialer Ausgleich ist zudem schwerer m��glich, da keine Einnahmen aus der CO2-Bepreisung zur Verf��gung stehen.

The EU is currently preparing a major overhaul of its climate policy framework to deliver on the Green Deal's new climate targets of a 55 percent cut in greenhouse gas (GHG) emissions relative to 1990 by 2030 and GHG neutrality by 2050. Extending and strengthening the role of carbon pricing, implemented through the EU Emissions Trading System (EU-ETS), will play an important role in this framework. Accordingly, the design and governance of the EU-ETS will be ever more crucial. In this article, we focus both on the 2018 EU-ETS reform as the first step on a slippery slope of increasing discretionary intervention and on the upcoming reform risks reinforcing this trend. In their seminal work, Kydland and Prescott (1977) caution against such interventions, because of their ability to destabilize the market and engender recurring interventions. This limits the capacity of policymakers to credibly commit to long-term targets, which undermines the dynamic efficiency of intertemporal emissions trading systems like the EU-ETS. To counteract this trend, we provide recommendations for rule-based adjustments to the EU-ETS.

The European Union's plan for climate neutrality by 2050 reopens the question of the role carbon pricing can and should play. Carbon pricing should not - and ultimately cannot - only be an enforcement tool or backstop that ensures targets are met, while the heavy-lifting of decarbonisation comes from directed technological change policies. Instead, a technologyneutral carbon price must become the main element, providing signals for decarbonised operations, investment and innovation in all sectors. This would guarantee cost-effective emission cuts, provide a clear path to net-zero and is a requirement for international cooperation and a global carbon pricing regime. Carbon pricing must therefore be at the core of EU climate policy. However, introducing a uniform, credible and durable carbon price across all sectors right away is politically and institutionally challenging. Moreover, policies to address other market failures will continue to affect significantly the impact of carbon pricing. The role of carbon pricing should therefore be strengthened gradually, taking these considerations into account. Current climate policies should thus be further developed within a three-part framework. First, a separate emissions trading scheme should be introduced for the transport and heating sector to prepare the sectors for integration into the EU emissions trading system, and to manage distributional implications. A carbon price balancer would manage price differences between the two systems in the short term. Second, a carbon price stabiliser (a price floor and price ceiling) should be implemented for both systems to manage price expectations and ensure price convergence between the two systems in the long run. Third, complementary policies (carbon price amplifiers) should be strengthened or put in place to trigger investment and innovation, helping policymakers to commit credibly to enforcing the cap and addressing other market failures. This approach would ensure convergence on a uniform, credible and durable carbon price for the whole economy.

Global mitigation efforts remain insufficient to limit the global temperature increase to well below 2 °C. While a growing academic literature analyzes this problem, perceptions of which obstacles inhibit goal attainment and which responses might be most effective seem to differ widely. This makes prioritization and agreement on the way forward difficult. To inform prioritization in global climate policy and research agendas, we present quantitative data on how 917 experts from the IPCC and the UNFCCC perceive the importance of different obstacles and response options for achieving 2 °C. On average, respondents consider opposition from special interest groups the most important obstacle and technological R&D the most important response. Our survey also finds that the majority of experts perceives a wide range of issues as important, supporting an agenda that is inclusive in terms of coverage. Average importance ratings differ between experts from the Global North and South, suggesting that balanced representation in global fora and regionally differentiated agendas are important. In particular, opposition from special interest groups is a top priority among experts from North America, Europe and Oceania. Investigating the drivers of individual importance ratings, we find little difference between experts from the IPCC and the UNFCCC, while expert's perceptions correlate with their academic training and their national scientific, regulatory, and financial contexts.

We show how normative standpoints determine optimal taxation of wealth. Since wealth is not equal to capital, we find very different welfare implications of land rent-, bequest- and capital taxation. It is mainly land rents that should be taxed. We develop an overlapping generations model with heterogeneous agents and calibrate it to OECD data. We compare three normative views. First, the Kaldor-Hicks criterion favors the laissez-faire equilibrium. Second, with prioritarian welfare functions based on money-metric utility, high land rent taxes are optimal due to a portfolio effect. Third, if society disapproves of bequeathing, bequest taxation becomes slightly more desirable.

The stringency of the EU’s Emission Trading System (ETS) is bound to be ratcheted-up to deliver on more ambitious goals as put forth in the EU’s Green Deal. Tightening the cap needs to consider the interactions with the Market Stability Reserve (MSR), which will be reviewed in 2021. Against that background, we employ the detailed model LIMES-EU to analyse options for the upcoming reforms. First, we examine how revising MSR parameters impacts allowance cancellations through the MSR. We find that under current regulation, the MSR cancels 5.1 Gt of allowances. Varying MSR parameters leads to cancellations in the range of 2.6 and 7.9 Gt, with the intake/outtake thresholds having the highest impact. Intake rates above 12% only have a limited effect but cause oscillatory intake behaviour. Second, we analyse how the 2030 targets can be achieved by adjusting the linear reduction factor (LRF). We find that the LRF increases MSR cancellations substantially (up to 10.0 Gt). This implies that increasing the LRF from currently 2.2% to 2.6% could already be consistent with the 55% EU-wide emission reduction target in 2030. However, we highlight that the number of MSR cancellations is subject to large uncertainty. Overall, the MSR increases the complexity of the market. In face of that, we suggest to develop the MSR into a Price Stability Reserve.