November 21, 2022, 11:00–12:15
Room Auditorium 4
Public Economics Seminar
Abstract
The question of whether carbon prices should be equal in all parts of the world has been debated among economists for several decades. Chilchinisky and Heal's (1994) seminal contribution has sparked interest in differential prices aligned to social priorities. With this paper, we revisit the theoretical underpinnings and practical implications of this issue and make three contributions. First, we clarify the distinct parts that efficiency and equity considerations play in this topic. Second, we introduce the possibility of having an emission trading system with differential prices. While this possibility has been mentioned in the literature, we believe that the potential scope and impact of such mechanisms has been under-appreciated. Third, we study how social welfare weights underlying carbon pricing can be related to equity principles for burden-sharing. We provide a numerical illustration, in a calibrated integrated assessment model, of how such a differential mechanism would play out across the main regions of the world. (Joint with Ulrike Kornek, Ottmar Edenhofer)