Working Paper: CEPR ID: DP13569
Authors: Grischa Perino; Robert Ritz; Arthur Van Benthem
Abstract: The world is under pressure to deliver on the 2015 Paris Climate Agreement. Individual jurisdictions are enacting policies such as phasing out coal, taxing aviation, and supporting renewable energy. These often overlap with a wider multi-jurisdictional carbon-pricing system like the EU's Emissions Trading System. We develop a general framework to study how such "overlapping climate policies" can help combat climate change--depending on their design, location and timing. Some policies are truly complementary while others backfire by raising aggregate emissions. At a conceptual level, our model encompasses most carbon-pricing systems used in practice and a wide range of popular unilateral policies.
Keywords: overlapping policy; internal carbon leakage; waterbed effect; cap-and-trade; carbon pricing; hybrid regulation
JEL Codes: H23; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overlapping policy reduces the demand for emissions allowances by 1 ton of CO2 (H23) | increase in demand for allowances in other jurisdictions (R22) |
| increase in demand for allowances in other jurisdictions (R22) | net zero effect on aggregate emissions (F62) |
| supply-side policies raise the carbon price (H23) | positive internal carbon leakage (D62) |
| demand-side policies reduce the demand for emissions-intensive production (Q52) | negative internal leakage (D62) |
| interplay between the waterbed effect and internal leakage (F32) | effectiveness of overlapping policy (F68) |
| high internal carbon leakage policies (Q58) | increase in aggregate emissions (Q43) |