Carbon pricing design: Effectiveness, efficiency and feasibility: An investment perspective

Florens Flues; Kurt van Dender

doi:https://doi.org/10.1787/91ad6a1e-en

OECD Taxation Working Papers

Working papers from the Centre for Tax Policy and Administration of the OECD that cover the full range of the Centre’s work on taxation with the main focus on tax policy related issues.

English, French

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ISSN: 22235558 (online)
https://doi.org/10.1787/22235558

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Carbon pricing design: Effectiveness, efficiency and feasibility

An investment perspective

Carbon pricing helps countries steer their economies towards and along a carbon-neutral growth path. This paper considers how the design of carbon pricing instruments affects their effectiveness, efficiency and feasibility. Design choices matter both for taxes and Emissions Trading Systems (ETSs). Considering the role of carbon price stability for clean investment, the paper shows how volatile carbon prices can cause risk-averse investors to forego clean investment that they would have undertaken with more stable prices. The paper then evaluates the effectiveness and efficiency of policy instruments to stabilise carbon prices in ETSs, which tend to produce more volatile carbon prices than taxes. The paper analyses the auction reserve price in California, the carbon price support in the UK, and the market stability reserve in the EU ETS. Considering feasibility, the paper discusses the tax (or emissions) base, how revenue use can affect support from households and firms, and administrative choices.

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English

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- Environment
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JEL: Q52: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Pollution Control Adoption and Costs; Distributional Effects; Employment Effects; H32: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: Firm; D40: Microeconomics / Market Structure, Pricing, and Design / Market Structure, Pricing, and Design: General; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; G11: Financial Economics / General Financial Markets / Portfolio Choice; Investment Decisions; Q54: Agricultural and Natural Resource Economics; Environmental and Ecological Economics / Environmental Economics / Climate; Natural Disasters and Their Management; Global Warming; H21: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Efficiency; Optimal Taxation; D04: Microeconomics / General / Microeconomic Policy: Formulation, Implementation, and Evaluation

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