Abstract

Existing estimates of optimal climate policy ignore the possibility that the revenues from a carbon tax could be used in a progressive way; as a result, these models imply that near-term climate action must come at some cost to the poor. Here we show that this storyline reverses when progressive revenue recycling is taken into account. We find that an equal per capita refund of carbon tax revenues implies that a 2°C target can pay large and immediate dividends for improving wellbeing, reducing inequality, and alleviating poverty. In an optimal policy calculation (without a pre-specified temperature constraint) that weighs the benefits against the costs of mitigation, the recommended policy is characterized by aggressive near-term climate action followed by a slower climb towards full decarbonization; this pattern prevents runaway warming while also preserving tax revenues for redistribution. Our approach corrects a long-standing bias against strong immediate climate action.

Wednesday, 25 November 2020, 3.00-4.00 PM CET
Title: Progressive revenue recycling of carbon taxes can alleviate poverty while avoiding dangerous climate change
Speaker: Francis Dennig, Yale-NUS College, Singapore
Moderator: Johannes Emmerling, RFF‐CMCC European Institute on Economics and the Environment (EIEE), Centro Euro‐Mediterraneo sui Cambiamenti Climatici, Italy